NEW YORK (AP) _ Madison Square Garden on Thursday derailed an ambitious, $14 billion plan to renovate Penn Station and redevelop the drab neighborhood around it by backing out of negotiations to move the sports arena one block away to a landmark post office.

MSG said it would move forward with plans announced years ago to renovate its existing arena, which sits over the nation's busiest train station and is home to the New York Rangers and the New York Knicks.

"After exploring several alternatives, it has become clear that the only viable option is a renovation," MSG spokesman Barry Watkins said in a statement.

The arena, on Manhattan's West Side, had been negotiating for months with city, state and federal officials to move into the James A. Farley Post Office, allowing developers to tear down the arena and renovate the dark maze of tunnels and train tracks that run underground.

But the project stalled when enough funding never materialized; the state official overseeing the project, Patrick Foye, left his job this month after former Gov. Eliot Spitzer resigned.

State officials didn't immediately comment Thursday.

MSG is owned by Cablevision Systems Corp., which also controls the Knicks, the Rangers and Radio City Music Hall. The company would need state and city permission to move ahead with its renovation.

City Council Speaker Christine Quinn said MSG's decision shows "a callous disregard" for the future of the West Side.

"It really takes a project and puts it into some level of chaos," she said.

MSG said Quinn didn't understand that its decision to renovate "will not affect the project one bit."

"We fail to understand why Ms. Quinn would not want to help us deliver a renovated arena to our more than 4 million annual fans, most of them New Yorkers," it said.

A spokesman for Mayor Michael Bloomberg, as well as the private development venture that planned to rebuild the station and create new office space and shops, reiterated a commitment to completing the train station and developing the surrounding area.

"While we understand the frustrations of Madison Square Garden after three lengthy years of pursuing this grand but complex plan, we have every faith that our city, state and federal leadership will enable this project to become a reality for all New Yorkers," said Vishaan Chakrabarti, president of Moynihan Station Venture, a joint venture of The Related Cos. and Vornado Realty Trust.

The city has feuded publicly with Cablevision before. The company's much-maligned chief executive, James Dolan, locked horns with Bloomberg over the development of a stadium for the New York Jets that was a key component of the city's failed Olympic bid.

Cablevision felt that the West Side stadium, which was successfully blocked, would have competed with Madison Square Garden.

The new train station is to be named after the late U.S. Sen. Daniel Patrick Moynihan, who sought more than a decade ago to create an atrium like Grand Central Terminal's in the landmark post office.

Amtrak, which owns Penn Station, urged MSG to keep negotiating the new station project.

"While we understand Madison Square Garden's frustration with the pace of the Moynihan Penn Station project, we firmly believe that the plan is a good one," Amtrak said, "and we are still confident that we can make this revitalized train station a reality."

Preservationists had expressed concern that the Garden, which would share space in the post office building, would drape billboards over the building's Corinthian columns or overwhelm the train station with a planned glass wall facing the concourse.

MSG said in its statement that it supported development on the West Side and praised Sen. Charles Schumer. The senator earlier Thursday proposed having the bistate Port Authority of New York and New Jersey oversee the renovation, which drew statements of support from Gov. David Paterson and Port Authority officials.

Schumer's office declined further comment after MSG's announcement.

Associated Press Writer Sara Kugler contributed to this report.

Copyright 2008 The Associated Press.