Olivia had given her blessing for a tribute to honour her husband's links to Henley-on-Thames, Oxon but she turned down a petition from 2,000 town residents, who had called for a memorial of the late guitarist at Liverpool, reported Daily Mirror.
She has pledged her support to a music festival or community project in his name rather than a bronze statue.
Olivia, 64, who still lives in Friar Park, the 120-roomed Victorian mansion she shared with George until his death in 2001 from lung cancer at the age of 58. He bought the sprawling Henley property in 1970.
"After many years of thoughtful consideration, and with great appreciation of the sentiment towards George, we have decided that a more appropriate way of honouring his memory in Henley would be to support a community project. We will announce the details in the summer," she said.
James Lambert, 42, who launched the petition for a memorial last June, said the move is "shameful" but he will follow Olivia's personal feelings.
"It is a shame that there is no possibility of having a memorial statue but obviously we have to take into account Olivia's personal feelings.
"The statue wasn't supposed to be a worldwide salute to him, but more of a nod from Henley for the work that he specifically did for the town and the fact that he loved living here."