Abu Dhabi-backed RedBird IMI on Tuesday said it would sell the Telegraph after it scrapped its acquisition of the right-leaning newspaper group because government intervention meant the deal was "no longer feasible".
RedBird IMI effectively took control of the Telegraph and the Spectator magazine in December when it repaid a debt owed by then-owner the Barclay family to Lloyds Bank, including a 600 million pound ($753 million) loan against the titles.
But the acquisition, which already faced a lengthy regulatory inquiry, was dealt a blow last month when Britain said it would stop foreign governments owning newspapers.
"RedBird IMI has today confirmed that it intends to withdraw from its proposed acquisition of the Telegraph Media Group and proceed with a sale," a RedBird IMI spokesperson said.
"We have held constructive conversations with the government about ensuring a smooth and orderly sale for both titles."
RedBird IMI, led by former CNN executive Jeff Zucker, is backed by Mansour bin Zayed Al Nahyan, a member of Abu Dhabi's ruling family and the owner of Manchester City soccer club.
The government issued a notice in December stopping RedBird IMI transferring ownership of the newspaper or changing its management and board while it investigated the deal.
Culture Secretary Lucy Frazer said on Tuesday she would now allow RedBird IMI to conduct an orderly sale of the titles after it had signalled its intention to withdraw.
"Throughout this process I have raised concerns about the potential impact of this deal on free expression and accurate presentation of news, and I took steps to ensure that media freedom was protected while there was an investigation into those concerns," she said.
RedBird IMI said its focus was on securing the best price for the titles, which are close to the ruling Conservatives.
Parties previously interested in the assets include hedge fund boss Paul Marshall, Daily Mail owner DMGT as well as private equity buyers.