BP Australia has backed out of a deal with Woolworths to buy its petrol business more than six months after the consumer watchdog rejected the deal.

The supermarket giant struck a deal in December, 2016, to sell its 527 petrol stations and convenience stores and 16 development sites to BP for $1.8 billion.

But the consumer watchdog rejected the deal late last year, arguing BP's acquisition would substantially lessen competition in fuel prices.

Woolworths previously announced it was considering challenging the Australian Competition and Consumer Commission's rejection, but on Thursday said the sale agreements with BP would no longer be continued.

"Woolworths Group Limited today announces that it has been notified by BP Australia that BP will not continue with the proposed purchase of the petrol business as announced on 28 December 2016," the company said in a statement.

The supermarket giant said it will continue "to actively engage with alternative options for its petrol business".