UNSW had been selected by Singapore in 2004 to spearhead what was expected to be the centrepiece of the city-state's ambitions to be "a global schoolhouse" by establishing a first full-scale foreign university campus with 15,000 students once the project was completed.

UNSW said Wednesday the decision was due to "lower than anticipated enrolments," with only 148 students in the first semester, half of its projected target. "An intensive review of our operations in Singapore clearly indicates that to continue would involve an unacceptable level of risk to our institution, " said UNSW.

The University of Warwick in the UK, named by Singapore to operate a second planned comprehensive university, decided not to proceed with the project in 2005 after its faculty expressed concerns about the cost and potential curbs on academic freedom in the authoritarian city-state.

The withdrawal of UNSW means Singapore will have to find another two candidates for its foreign university project to complement its current offering of specialised schools, including overseas branches of Insead and the University of Chicago Business School.

Singapore's Economic Development Board, which is leading the effort to attract foreign educational institutions, expressed regret about the decision, but said it was still "fully committed to developing Singapore into a premier education hub".

UNSW took the decision shortly before being required to start construction of its campus to replace temporary facilities.

"We looked at the numbers and decided it was not financially feasible. Another problem was that most of the students were Singaporeans, when we wanted a broader mix from around the region," said a UNSW official, who denied that issues of academic freedom played a role in the decision.

The UNSW decision raises "substantial questions about the capacity of Singapore to move from plan to reality in its global schoolhouse development agenda" and will be discussed "in overseas university circles for months, if not years to come," said Kristopher Olds at the University of Wisconsin who studies the global growth of universities.

Mr Olds said that UNSW had requested a A$113m loan from the Australian government for the project and an estimated S$80m in subsidies from the Singapore government.

Singapore has hoped that the presence of overseas educational institutions would attract foreign students who might stay on afterwards in the city-state to boost its skilled labour force as it seeks to increase the population to 6.5m from 4.5m over the next decade.

The city-state is trying to become a regional centre for private banking and biotechnology. The UNSW programme in Singapore had planned to focus on science and engineering along with business, languages, media and the fine arts, all sectors that the government wants to develop.

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