The UK's Royal Parks, which manages the land on which the statue were to sit close to similar memorials to Gandhi, Nelson Mandela and Britain's war-time PM Winston Churchill overlooking Britain's Parliament complex, refused permission on the ground that it has not been given assurances that Thatcher's family approve of the 300,000-pound (USD 388,0000) monument.
Local campaigners have also raised concerns about the potential for such a memorial to the controversial and divisive Conservative party PM, dubbed the "Iron Lady" for her uncompromising leadership style, to become the subject of vandalism.
However, the Tory leader's daughter, Carol, sent a letter to the charity last year objecting to the absence of her mother's trademark handbag in the design.
In a joint statement from the UK government and Royal Parks, estates officer Matthew Oakley said: "The Royal Parks is responsible for the management of Canning Green and it has not given permission for the installation for this statue. The applicant has failed to give the reassurances the Royal Parks has sought, and therefore the proposal has not yet been put to our board.
A submission from the Thorney Island Society, representing residents in the Parliament Square area in central London, called for a 10-year gap between the death of a subject and erection of a public memorial.
"We note that the statue of Nelson Mandela was erected only six years after his death, but that should not set a precedent, especially as Mandela was an entirely uncontroversial figure, respected throughout the world," Lucy Peck wrote on behalf of the society.
She added: "While Lady Thatcher was also widely respected it cannot be said that she was uncontroversial in this country. There is a strong case for the 10-year rule to be respected - there should be a decent interval before permanent statues are erected, especially when they are controversial enough to risk vandalism.
British Prime Minister Theresa May has also added her own voice to the debate, saying that fear of vandalism should not prevent such a memorial being erected.
"I understand there are a number of issues that have been raised around the statue. What I'm very clear about is there should be no suggestion that the threat of vandalism should stop a statue of Margaret Thatcher from being put up," she said.
The latest sculpture was intended for a stone plinth on the western side of Parliament Square on Canning Green, not far from Gandhi's statue - the most recent addition to the historic square in March 2015.
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