The Department of Justice has reversed a decision to house asylum seekers in the Shannon Key West Hotel in Rooskey, Co Leitrim.
The move followed two fires at the premises in the last two months.
In February a blaze was discovered by two on-site security guards - while firefighters brought another fire under control in January.
At the time, Justice Minister Charlie Flanagan expressed 'grave concern' over the incident.
He said: "The person or people responsible for this attack have shown a reckless disregard for the safety of human life and no respect for private property.
"The owners of the hotel had just completed the necessary repairs to the property from the last fire and the damage will now have to be assessed again for the second time this year."
But the Department of Justice said the decision was taken following legal advice from the Chief State Solicitors Office.
It said it "found difficulties with the lease agreement between the owners of the hotel and the operator renting it" - which made proceeding with the proposed centre unviable.
"The decision not to proceed was taken solely in relation to the difficulties with the lease", the department said in a statement.
The department has said it is not party to these lease arrangements, and these matters are outside of its control.
The department also said it "regrets" it is not in a position to proceed with the plans.
"We remain committed to sourcing suitable premises to meet the accommodation needs of people in the international protection process", the department added.
"A regional procurement process is underway and will continue throughout the year."