The government is to reopen a public inquiry into the £500m Thames Gateway bridge after an inspector recommended that it should not be built.

Business groups and the London mayor, Ken Livingstone, said the proposed six-lane, motorway-scale bridge over the Thames was essential for the regeneration of east London and the development of the Thames Gateway region.

But the scheme was fiercely opposed during a year-long public inquiry by environment groups and local residents, who showed that it would add to traffic and pollution in some of Britain's poorest boroughs.

Hazel Blears, the secretary of state for communities and local government, said she wanted the new inquiry to investigate further whether the bridge would lead to regeneration, and its potential impact on pollution.

The unexpected decision - one of the few in the past 20 years in which a major road scheme has not immediately been accepted - was greeted with dismay by Mr Livingstone.

"Any delay to the Thames Gateway bridge is a blow to east London, and south-east London in particular," he said.

"The reopening of the public inquiry will delay bringing the benefits of the Thames Gateway bridge to an area that sorely needs them. This new crossing is crucial to supporting plans for an extra 160,000 houses in the Thames Gateway region and up to 42,000 additional jobs in the area as whole."

But the Green party and environment groups said the government should have rejected the scheme.

"We're extremely disappointed that the government did not follow the inspector's advice," said Jenny Bates, the Friends of the Earth London campaigns coordinator.

"The bridge would bring few benefits to the local people and lead to more traffic, more noise and air pollution and an increase in climate-changing emissions. Better ways must found to regenerate the local area."

Darren Johnson, a Green party member of the London assembly, said: "This is good news for the environment and for the people of east London. Backing this road bridge has been the single biggest mistake of the Livingstone mayoralty. He can't claim that climate change is his number one priority and then build a traffic-generating road like this."

The inspector was concerned that 17m vehicles a year would use the bridge, and that by 2016 levels of traffic would grow in four local boroughs by between 10% and 36%.

Since the inquiry closed, the government has increased its commitment to countering climate-changing emissions .

Transport for London, the main backer of the bridge scheme, insisted it was a "local road" that would economically benefit the surrounding boroughs.