The Dan Murphy's megastore at Darwin Airport has been in the sights of the local Danila Dilba Health Service, which launched legal action last month.

It objected to the Northern Territory government's decision to approve the bottle shop and demanded the accompanying liquor licence be revoked.

The store would have been the largest in the NT.

Woolworths on Thursday announced it would no longer go ahead after receiving the findings of an independent panel led by lawyer Danny Gilbert set up in December to review the project.

"The Gilbert review has made it clear that we did not do enough in this community to live up to the best practice engagement," chairman Gordon Cairns said in a statement.

"We did not do enough stakeholder engagement with a range of Aboriginal and Torres Strait Islander communities and organisations."

The review, and the company's formal response, will be released in June.

But for now, Woolworths has promised the findings will underpin its engagement with Indigenous communities in the future.

Dozens of health and community organisations had repeatedly criticised the bottle shop, saying it would be devastating for local communities including Bagot, which is alcohol-free.

Woolworth's application was approved in December by the NT director of liquor licensing on the proviso the store closed by 9pm.

Under the licence, customers would have been required to say where they intended to consume the alcohol they proposed to purchase, given three nearby communities were 'dry'.

The Royal Australasian College of Physicians said Woolworths' decision was a relief.

"This news comes as a relief to specialist physicians who have been seriously concerned about the impacts of building a liquor megastore and the harms that it would bring to the community," president John Wilson said.

Australian Associated Press