Canada's industry minister said that he felt the offer from the world's largest mining company - nicknamed the Big Australian - would not ' be of net benefit' to Canada.
It is only the second time that the Canadian government has blocked a takeover.
However, it is third time unlucky for BHP Billiton, which has had all of its big strategic plays slapped down in the last two years.
First it was the $66bn attempt to buy Rio Tinto, then the proposed merger of Rio and BHP's iron ore assets was dissolved as it became clear it would not get regulatory approval, and now this.
According to insiders, Ottawa's decision was a shock to BHP. Marius Kloppers, chief executive, thought he had done enough to win over the politicians - making a huge number of promises on jobs and to make good a possible £2bn tax shortfall - to secure the world's fifth largest supplier of potash.
What BHP Billiton will do now is unclear. Ostensibly it has 30 days to improve its offer, but team-Billiton appeared to have the wind well and truly sucked from its sails yesterday.
Insiders admit that the miner is not yet clear whether Canadian politicians have really left the door open to a new offer.
'Is there more that we can do on jobs or taxes, or is it actually about BHP Billiton being a foreign company. Is this pure protectionism?' an insider asked.
BHP's lawyers were in court yesterday in Canada but only to secure an adjournment in one of the two legal attempts to derail the deal.
At this point, there seems little strong conviction that the bid will get back on track.
Perhaps that is to do with the initial reaction of the markets. BHP Billiton's shares were marked higher, as investors appeared to express relief that the massive deal had been halted in its tracks.
With Potash prices climbing since August, when BHP showed its hand, there was a growing fear that BHP would overpay.
BHP Billiton Doesn't Get Potash
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