Mardi Gras organisers said police plans to restrict drinking on the street to one area of the city's gay village were unworkable.

The annual event was expected to attract 100,000 visitors from across the world.

But Greater Manchester Police denied it was discriminating and said it was simply enforcing by-laws which ban drinking alcohol in the city's streets.

All we can say is that a homophobic decision has been taken

John Hamilton, Village Business Association

The event, which began in 1993, is organised by businesses on the city's gay village - an area of bars and restaurants centred around Canal Street.

It was scheduled to take place from 23 to 26 August.

But talks between organisers and police broke down on Friday afternoon, leaving only a smaller-scale party in the Gay Village's bars still going ahead.

John Hamilton, chairman of the Village Business Association, said: "I am deeply upset and saddened but not at all shocked.

"We believed, from what we were being told, that we could come to a compromise - but we have been led up the garden path."

He said city centre street drinking areas during the World Cup and the G Percussion dance music festival had been much larger.

He added: "None of us can understand the stance the police are taking on this.

"There has never been any trouble associated with this event throughout its history.

A smaller party will go ahead

"All we can say is that a homophobic decision has been taken."

A Greater Manchester Police spokeswoman insisted: "This is definitely not a homophobic decision."

She added a large tolerance area had been discounted on the grounds of "public safety".

Manchester City Council said it backed the police's stance.