But the OCA, headed by influential sports power broker Sheikh Sheikh Ahmad Al-Fahad Al-Sabah of Kuwait, said they were left with no choice but to look elsewhere following its executive committee meeting in Tehran on Friday.
"Amongst the key decisions taken by the OCA Executive Board was the decision to withdraw the 3rd Asian Youth Games in 2017 from Sri Lanka due to problems with the autonomy of the Sri Lanka NOC (National Olympic Committee) and government," the OCA said in a statement.
"The OCA concluded that Sri Lanka's sports law was not in accordance with the Olympic Charter and so, in line with the OCA’s commitment to the principles of Olympism, could not accept the country as host of the next Asian Youth Games."
Thailand, Qatar, United Arab Emirates, Uzbekistan and Indonesia had shown interest in hosting the third edition of the Games before Hambantota bagged it.
Singapore, in 2009, and China's Nanjing, in 2013, hosted the first two editions as a dress rehearsal for staging the Youth Olympics the following year. The Nanjing games featured more than 2,000 athletes taking part in 16 sports.
Indonesia might be pushed to step in and replace Sri Lanka as they are hosting the 2018 Asian Games following Vietnam's late withdraw.
Autonomy concerns have plagued other sports in Sri Lanka.
In April, the International Cricket Council decided to withhold its next financial distribution for Sri Lanka Cricket pending an investigation into possible government interference in SLC.
(Writing by Patrick Johnston in Singapore; editing by Amlan Chakraborty)
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