A Chinese city has axed plans to build a multimillion-pound copper alloy plant after anti-pollution demonstrators took to the streets for a third day.

The U-turn, announced on the city government's microblog, came after pledges to suspend construction pending consultation and threats to punish protest organisers failed to halt the demonstrations in Shifang, Sichuan province, on Tuesday.

On Monday night police used teargas to disperse thousands of protesters after some lobbed bricks at government offices and overturned police vehicles.

A microblog posting by the Shifang government denied claims of a death, but said several police officers and 13 protesters had been injured. Others told Hong Kong media that casualty figures were much higher and some accused police of beating demonstrators.

The demonstrations are the latest in a series of grassroots protests in China, testifying to growing fears about the toll development is taking on the environment and health. Last summer, tens of thousands of people in the north-eastern city of Dalian marched to demand the relocation of a chemical plant.

The Shifang government said it had decided to halt the copper project because of insufficient public understanding and support.

Earlier, Shifang police had warned that people who "incited, planned or organised" unauthorised assembly or protests – including online or by text message – should stop at once or face serious consequences.

"Whoever incited, planned or organised illegal assembly demonstrations or rob, beat and smash must give themselves up to police in three days for the chance to be dealt with leniently," the notice said, adding that those who failed to do so would be punished severely.

It urged the public not to believe or spread rumours and to maintain social stability, and promised rewards for reporting those behind the protests and related offences. The demonstrations in Shifang began on Sunday night, when students and residents gathered to protest.

On Monday morning Xu Guangyong, the mayor of Shifang, pledged to supervise the project closely to ensure it met environmental standards. Hours later, authorities promised to suspend construction of the 10.4bn yuan (£1bn) molybdenum-copper alloy factory by the Shanghai-listed Sichuan Hongda.

"The government has said they will stop the plant from opening, but many people have not seen this notice and those who have do not believe it," one resident told Reuters on Tuesday.

Another added: "We have so many people in Shifang, we aren't afraid of them. We Shifang people are fundamentally non-violent, we just don't want them to build the plant in Shifang. Is that so hard?"

Ma Jun, the director of the Institute of Public and Environmental Affairs, said the case showed the lack of public participation in environmental decision-making. "Heavy metal projects are always highly polluting. Of course the public has concerns about this," he said. "The government only released the short version of the plant's environmental report, which did not have information about the solid waste and waste water. It should have released the full version.

"At the least, they needed to hold a public hearing. In other countries the public have legal recourse when their right to participation cannot be guaranteed, but that is not possible in China."

Sichuan Hongda issued a statement that acknowledged the suspension of construction but stressed that the project was government-approved.

Additional research by Cecily Huang