The as-yet unbuilt Circuit of Wales, in a deprived area near Ebbw Vale, had sought the government guarantee for a loan facility of 210 million pounds from Aviva Investors.
The 433 million pound project has a deal to host the British MotoGP round until 2020, with the option of five more years, but has had to turn to Silverstone to keep the race on the calendar.
Wales economy and infrastructure secretary Ken Skates said in a statement that the guarantee would have exposed the government to more than half of the risk.
"It is assessed that there is a very significant risk that the full 373 million pound debt of the entire Circuit of Wales project would be classified against Welsh Government capital spending," he said.
Skates also said due diligence had found the company's estimate of 6,000 potential jobs to be created was "significantly overstated".
He said the Welsh government would commit instead to building an automotive technology business park in Ebbw Vale with funding of 100 million pounds over 10 years.
The Circuit of Wales said it was "hugely disappointed and saddened" by the decision not to support the development.
"We strongly disagree with the decision and the rationale behind it," a spokesperson said in a statement.
(Reporting by Alan Baldwin, editing by Toby Davis)
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