Extensive negotiations are said to have taken place between the clubs and the football and rugby authorities over the past eight months since the proposals were first mooted.
The clubs agreed a joint venture would not be possible after failing to reach agreement over primacy of tenure at the site.
The Tigers will now concentrate on developing its Welford Road site while City will continue to be the sole tenant of the Walkers Stadium.
City’s chief executive Tim Davies said: "We came a very long way in our negotiations but could not quite get over the finishing line.
"Our discussions have undoubtedly brought the two clubs together and I am sure we will continue to work closely together in the future.
"Today’s announcement in no way detracts from the football club’s efforts to further develop the Walkers Stadium as one of the Midlands’ major sporting and entertaining venues."
Peter Tom, chairman of Leicester Tigers, said: "Whilst the football and rugby authorities have been very understanding, it was not possible to resolve the primacy issue to achieve the equality that both clubs were looking for which was one of the commitments that we made to our supporters at the time of the announcement.
"We have also reached agreement to buy Welford Road and the adjacent land necessary for redevelopment, subject to planning approval."
