The decision was taken amid fears that organizational and tendering delays would make it unlikely the original grandiose scheme would be ready in time - as well as fears that costs were spiralling out of control.
In an unusually colorful cabinet debate, various ministers had their say.
Economics Minister Dana Reizniece-Ozola (Greens and Farmers Alliance) repeated her warning that participation would be counter-productive.
"The question is whether we can now produce somehting of excellence – I contend that we cannot," she said, adding, "In my two months as minister I've tried to solve this problem."
She was supported by party colleague Guntis Belevics who angrily cast aside fears the eleventh-hour cancellation might upset the Italian hosts.
"What, are they going to stop patrolling our skies?" he said in apparent reference to Italian participation in the Baltic Air Policing mission with NATO, after the matter was raised by Foreign Ministry representative Andrejs Pildegovics.
However, throughout the debate Prime Minister Laimdota Straujuma lamented the fact that events had come to such a pass.
"It looks very bad at the moment... if we participate with something that's not good, it will be very bad... If we don't participate, we will have to apologise," Straujuma said.
"This is a very bad decision we have made but we have no better decision," she admitted.
The cabinet instructed the Economics Ministry to work out the exact costs of the project and to minimise the amounts that will have to be paid out in order to compensate suppliers for the work they have already put into the project over two years.
Nevertheless, the costs of the project are still likely to run into several million euros.