Sky announced the adaptation, for which it had bought the rights from the BBC, in 2008 as part of an increased commitment to UK drama at the channel.
"Following the development process we have decided not to produce Blake's 7. However, Sky continues to invest heavily in original drama and it remains at the heart of our plans," said a spokeswoman for the broadcaster.
"We have just announced an extended run for the second series of Chris Ryan's Strike Back and we'll soon be unveiling a new long-running series for primetime."
Meanwhile, B4 productions said in a statement: "Sky deciding to not proceed with the planned TV revival of Blake's 7 is obviously disappointing, but the development process has resulted in the dynamic reinvention of this 'branded' series."
Blake's 7 was announced when former Sky1 controller Richard Woolfe was running the broadcaster. Stuart Murphy has since shifted his focus towards "warmer" scripted shows.