On hearing the news that New World Development and Sun Hung Kai Properties had decided not to proceed with their plan to pull down the 2,470 flats, which have never been occupied, Ronny Tong Ka-wah, of the Article 45 Concern Group, said he was very surprised.

'This is definitely a victory for public opinion,' he said.

Democrat James To Kun-sun praised the public for defending Hong Kong's core values, saying society would not tolerate the creation of an enormous amount of waste by pulling down new buildings.

'They did not dare in the past challenge Hong Kong's core values. Now someone did and we see how the people fought back,' he said.

The developers had stood to make a $6.2 billion profit if the site had been redeveloped as luxury flats.

The decision to knock down the seven blocks of flats, built for sale under the Home Ownership Scheme, was taken after the government withdrew them from the market to prop up house prices, then sold them to developers to avoid penalty payments to the builders of the estate.

Both Mr To and colleague Albert Ho Chun-yan said the legislature should investigate whether officials had colluded with developers when the government sold the blocks for $864 million in February.

Legco housing panel chairman Chan Kam-lam, of the Democratic Alliance for Betterment of Hong Kong, welcomed the decision in view of the strong public opposition to the demolition plan. He said the panel would study documents provided by the government, including detailed correspondence between officials and developers, before deciding whether to go ahead with a plan to set up a Legco select committee to investigate the matter.

'This should really signal the end ... although we still need to find out whether any officials had neglected their duties. The public is still concerned with the sale of the blocks at a knockdown price,' he said.

Selina Chow Liang Shuk-yee, vice-chairman of the Liberal Party, agreed legislators should study the information but also said the matter should be laid to rest.

Executive Councillor Cheng Yiu-tong was worried the politicising of the issue would continue. 'I don't know whether this is a good or bad result, since it's too politicised. The business sector will be very concerned on political risk in the future,' he said.

City University associate professor of economics Charles Li Kui-wai said the incident might affect economic freedom, since the developers had bowed to public opinion.

Abraham Razack, property and construction representative in Legco, defended his constituents' claim that they had made a U-turn to maintain social harmony. 'Such good news is a Christmas present to the Hong Kong people,' he said.

Greenpeace assistant campaigner Edward Chan Yue-fai said it was a major victory for Hong Kong people.

Friends of the Earth and the Hong Kong Professional Teachers' Union said the protest they had planned on the Hunghom affair tomorrow would be turned into a celebration.