The decision was reached after a meeting convened by Prime Minister Mahinda Rajapaksa today involving Sri Lanka cricket officials, former players and administrators.
A statement said Prime Minister has also instructed to direct funds to develop school cricket and stadiums.
Senior cricketers Sanath Jayasuriya, Roshan Mahanama, Kumar Sangakkara, Mahela Jayawardana and Lasith Malinga participated in the meeting.
Former captain Sanath Jayasuriya said he told the meeting that they need to focus on developing school and other cricket infrastructure and it is not the time to build massive stadiums.
Sri Lanka Cricket board had previously stated that the establishment of this stadium was planned in view of the increasing demand for the game and especially due to the popularity of the short formats of the game.
It had said the need has arisen to cater to large crowds with easy access in an urban environment.
The proposed stadium was planned to be the biggest with 40 thousand seating capacity in first stage with scope for further expansion.
However, it invited criticism from several quarters questioning whether it is the right project to invest in wake of current economic crisis caused due to COVID.