"The proposal does not have the support of the government so it dies here," Sports Minister Giancarlo Giorgetti told parliament. "Doubt and suspicion prevailed."
The government decision will make it almost impossible for the Italian Olympic Committee (CONI) to press ahead with the plan, although local media said it might try to recast the proposal in the coming hours to salvage its bid.
There was no immediate comment from CONI.
Three cities have already pulled out of the 2026 race, with Japan's Sapporo, Switzerland's Sion and Austria's Graz all previously announcing their decision to withdraw.
Calgary, Stockholm and Turkey's Erzurum are the only three definitely left in the running, with the International Olympic Committee next month due to name the city or cities which will enter the one-year candidature phase.
Tuesday's announcement was particularly embarrassing to CONI because it was the third time in six years that an Italian drive to host the Olympics has ended in failure.
Rome withdrew from the race to stage first the 2020 and then the 2024 Summer Games because of financial concerns and political opposition respectively.
CONI announced its 2026 Winter Olympics bid in August, pulling together separate proposals from three cities into a joint effort.
However, the idea ran into immediate trouble thanks to strong political differences between the mayor of Milan, who is from the centre-left, and the mayor of Turin, who is from the anti-establishment 5-Star Movement.
With the official bid apparently now dead, the northern Italian regions of Lombardy and Veneto suggested pooling their resources to put forward a new, revised offer and Italian media said CONI was working on the idea.
Giorgetti said such a project would not have government backing.
Deputy Prime Minister Luigi Di Maio, who is head of the 5-Star Movement, blamed CONI for the impasse.
"The truth is that we have unfortunately paid the price of CONI's decision. In an attempt to make everyone happy, it did not have the courage to make a clear decision from the start, creating an unsustainable situation in which, as usual, they wasted state money," he said.
(Reporting by Crispian Balmer; Editing by Toby Davis)
