The Health Minister Michael McGimpsey made the announcement to the Assembly in a statement on his capital priorities for the next four years.
He said he was committed to the future development of the unit at Altnagelvin, but there was not enough money in the Health Department's budget to fund it at present.
The decision means that people in Derry and Donegal will continue to have to make the 200-mile round trip to the cancer centre in Belfast.
Mr McGimpsey said he would make arrangements to introduce two new radiotherapy machines at Belfast City Hospital over the next two years and commented: "I remain totally committed to ensuring that people with cancer in Northern Ireland have access to the radiotherapy services they need."
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It was also announced that construction would start on a number of other high priority schemes including the next phase of the Ulster Hospital ward block, the new regional Maternity Hospital at the Royal Victoria Hospital in Belfast, the new enhanced local hospital at Omagh and a new acute psychiatric facility at the Belfast city hospital.
The Chairman of the Health Committtee, Jim Wells, said it was disappointing that the Health Minister had delivered such negative news as the Assembly was preparing to dissolve before the election.
Mr Wells commented: "The decision to mothball the Altnagelvin cancer facility will cause enormous uproar west of the Bann and the north west of this province."
The Foyle MLA, Pol Callaghan, called on Mr McGimpsey to continue his efforts to ensure that the unit is built, commenting: "Many people will say to me that this decision may put lives at risk."
(JG/GK)
