Alan Johnson, the Health Secretary, was accused of rowing back on public service reform yesterday when he announced that the Government was scrapping plans for a nationwide network of private healthcare clinics for NHS patients.

Cancelling the contracts for six proposed clinics and announcing the closure of one already functioning in the West Midlands, Mr Johnson came under harsh criticism from doctors who said the reversal was a "crying shame" that would cost taxpayers millions of pounds in compensation.

Business leaders also expressed disappointment at the announcement, accusing the Prime Minister of retreating from the Blairite reform agenda, a charge denied by Downing Street.

"It is difficult to see it as anything other than an early Christmas present for opponents of reform," said the CBI's director of public services, Neil Bentley. "It is patients that are the losers. This decision reduces patient choice and means people will not benefit from the extremely high standards of care that independent-sector treatment centres have been independently judged to offer."

Blairite MPs expressed alarm at the decision to put the brakes on an expansion in the use of the private sector to cut waiting times. They see it as further evidence that parts of the Blair legacy are under threat from Gordon Brown, who has also ordered a review of a plan for 400 city academy schools by the Downing Street delivery unit.

But yesterday's move was hailed as a victory for a campaign against the "privatisation" of the NHS by health unions and Labour MPs who claimed jobs in the NHS would have been lost.

Officials refused to say how much money would have to be paid for cancelling the contracts on the grounds that the details were "commercially sensitive". But there promises to be a lengthy parliamentary row over the costs, with the public spending watchdog, the Commons Public Accounts Committee, almost certain to launch an investigation.

Dr Jonathan Fielden, chairman of the BMA's consultants committee, said: "It's a crying shame so much money has been wasted on this initiative when the NHS could have achieved better value for money."

The Liberal Democrat health spokesman Norman Lamb asked: "How much is this remarkable volte-face going to cost the NHS? Public money will be used to pay compensation and taxpayers have a right to know how much this will be. The Government mustn't hide behind claims of commercial confidentiality."

Stephen O'Brien, a shadow Health minister, said: "This is an admission of incompetence and failure by ministers. Central procurement has led to poor value for money and major costs in tendering which have now been abandoned.

"It was always clear the right policy is to allow independent sector provision to NHS standards and tariff, based on patient choice and local commissioning. Alan Johnson and the Government still cling to the fallacy they should control capacity from the centre."

Insisting that he supported private and public sector co-operation in health care, Mr Johnson said he was giving the go-ahead to 10 new private clinics to offer services to NHS patients, making 50 across the country. But he said he was cancelling six contracts for future clinics and shutting down another scheme that was already in operation.

Downing Street denied it was scaling back Blairite reforms, saying: "The policy remains the same. We are totally committed to using the independent sector where it represents value for money."