The premise giving the sector 20% tax relief had been floated by the Labour government before the last election.
But the Culture Minister, Ed Vaizey, told delegates at the video game Develop conference in Brighton that the case "had not been made".
Dr Richard Wilson, chief executive officer of game trade association Tiga, told BBC News he was "disappointed".
"We had already made a very convincing case to the previous government and both the Conservative Party and Lib-Dems said that they supported tax relief during the last parliament.
"We clearly convinced them at one point. What's essentially happened is the Conservative Party - and George Osbourne in particular - reneged on that promise.
"It's hard not to feel let down by them," he added.