"The bidding will be reopened in two days and the decision will be taken next spring," said IAAF general secretary Istvan Gyulai.
UK Athletics has previously argued that the World Championships should take place in Sheffield. But the IAAF has ruled that if London is not hosting the games then the event is now open to any city outside of the UK.
The announcement comes less than a week after a damning report by a Parliamentary committee into abortive plans to build a stadium to host the 2005 event in north London.
Rome, Berlin, Brussels, Barcelona, Madrid and Stuttgart are all expected to put their names in the hat to host the Games.
The IAAF's decision is likely to severely damage London's chances of hosting the 2012 Olympic Games.
