A proposed replacement for the Royal Yacht Britannia has been dropped as a result of the spending squeeze facing Whitehall departments.

Defence Secretary Ben Wallace will spend the £250 million allocated to the project on surveillance ships that will protect undersea cables.

A new Royal ‘floating palace’ had been advocated by Boris Johnson who argued that it would make a return on investment in terms of its role in promoting the UK.

British ship designers Harland and Wolff, and Houlder were hoping to win the prestigious contract.

But Mr Wallace told the Commons that the budget was being re-allocated to Multi-Role Ocean Surveillance Ships (MROSS) whose role will include monitoring underwater cables amid speculation of Russian involvement in the explosions that damaged the Nord Stream gas pipelines in September.

“I am clear that to effectually address the current and future threats we will now invest in MROSS ships that protect sensitive defence infrastructure and civil infrastructure to improve our ability to detect threats to the seabed and cables,” Mr Wallace told MPs.

“I have also therefore directed the termination of the national flagship competition with immediate effect to bring forward the first MROSS ship in its place.”

Labour welcomed the decision and described the Royal Yacht as a “vanity project” for the former prime minister.

The original yacht was built at the John Brown shipyard in Clydebank and was in service from 1954 until 1997. She was the 83rd such vessel since King Charles II acceded to the throne in 1660, and is the second royal yacht to bear the name.

In January 1997, the Tory government committed itself to replacing the Royal Yacht if re-elected. But Labour won the election and the yacht slipped off the agenda.

The Queen was visibly upset when she attended the decommissioning ceremony that year. It is now permanently berthed at Ocean Terminal, Leith, attracting 300,000 visitors a year, and is a popular venue for hosting functions and ceremonies.