As the government pledged £16m funding to pave the path to a devolution deal for Torbay and Devon, Plymouth City Council announced its withdrawal from negotiations.
The government is "committed" to ongoing talks for a deal to transfer powers and funding from Whitehall to local government, Torbay Council said.
This includes investment in training and jobs.
Plymouth's council leader branded the deal "unreasonable and unrealistic".
Councillor Tudor Evans said to continue on with the process would have meant "less power and control" over transport in the city, no commitment to increased funding - and a "backward step" for the area.
Although he supported the principle of devolution, there was "no choice but to withdraw", he added because of government insistence they "surrender our powers and funding regarding transport".
Wishing luck to Devon and Torbay leaders, Mr Evans added: "It is massively disappointing given all the work that has taken place and we hope the government will realise the final deal it offered was unreasonable and unrealistic and that it will reconsider in the future."
Levelling Up Minister Jacob Young said the government was "committed" to continuing negotiations to conclude a deal with Devon and Torbay Councils.
In a letter to leaders in Devon and Torbay, Mr Young offered £16m of "new capital funding" for the green economy including environmental science and technologies.
With a focus on new "green jobs, homes, skills, and business growth", the funding would also be aimed at attracting private sector investment, he said.
A wider package of "devolved powers and funding" were in "advanced negotiations".
Meanwhile, councils were seeking "greater local control" and resources for affordable housing and improved public transport, Torbay Council said.
The devolution model would create a Combined County Authority (CCA) for the area, as opposed to a mayor for Devon, it added.
John Hart, leader of Devon County Council, said coming close to finalising a deal was "hugely significant", giving Devon and Torbay a "stronger voice" in Whitehall.
Councillor David Thomas, Leader of Torbay Council said the funding announcement showed "real momentum" for the devolution deal.
Both leaders said they respected Plymouth City Council's decision and would work with them, while Councillor Evans said Plymouth was also committed to co-operation.
Subject to an agreement in principle on the deal, a public consultation would be launched on the setting up of a proposed CCA, with a final decision coming before the respective councils in March 2024.