South Africa has three times turned down a request to grant the exiled Tibetan spiritual leader a visa, as it tried to build closer ties with China.
A number of Nobel Peace Prize winners had tried to force the South African government to reverse its decision, by threatening to boycott the event, but they appear to have failed.
"After extensive discussion and deliberation, it has been decided that the 2014 World Summit of Nobel Peace Laureates, planned for 13-15 October 2014 in Cape Town, will be suspended," the city authorities said in a statement.
"Given the continued intransigence of the South African Government on this matter, this eventuality appears unlikely at best," said the opposition-controlled city.
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The Dalai Lama today accused South Africa of "bullying a simple person".
The Tibetan leader thanked his fellow peace laureates for their efforts, saying they had "worked hard" to resolve the issue.
He made his comments at a ceremony in Dharamshala attended by two fellow laureates -- Jody Williams, founder of the International Campaign to Ban Landmines, and the Iranian human rights lawyer Shirin Ebadi -- both of whom are boycotting the South Africa summit.
"Not a single laureate is happy about that decision (to cancel). Fourteen laureates protested to President Zuma, pressuring him, begging him, to give a visa to His Holiness (the Dalai Lama) so that we all could be together and celebrate in South Africa the legacy of Nelson Mandela."
The Dalai Lama has lived in exile in India since fleeing Tibet in 1959 after a failed uprising. China accuses the 79-year-old of being a separatist, while he says he merely wants more autonomy for Tibet.