US Energy Secretary Steven Chu said the government preferred to target more immediate energy-saving solutions.
"The probability of deploying hydrogen fuel-cell vehicles in the next 10 to 20 years is low," Energy Department spokesman Tom Welch told reporters.
Mr Welch cited the immense cost of developing an infrastructure of hydrogen pipelines and fuelling stations for the cars. He also said there were technical obstacles to producing hydrogen and storing it in vehicles.
President Obama's 2010 budget proposal calls for US$68.2 million to be spent on fuel-cell technologies, down from US$169.0 million last year, and the savings comes from cancellation of funds for vehicle development, Mr Welch said.
Most major car companies are working on fuel cell technology for cars and Honda has begun selling its FCX Clarity fuel cell vehicle in Japan and the US.
The move will certainly slow the development of hydrogen fuel cell vehicles as there will now be no government funding in the US for research or to support the roll-out of infrastructure to assist the development of hydrogen fuel cell vehicles.
The Energy Department will continue to pay for research into stationary fuel cells that could be used for non-automotive purposes, he said.
In his 2003 State of the Union address, Mr Bush proposed spending US$1.2 billion to develop hydrogen-powered vehicles.
"With a new national commitment, our scientists and engineers will overcome obstacles to taking these cars from laboratory to showroom, so that the first car driven by a child born today could be powered by hydrogen, and pollution-free," President Bush said.
The Bush administration spent more than US$500 million on research into producing and distributing hydrogen so it could be used in cars powered by fuel cells.
After Mr Bush's speech, Philip Clapp, president of the National Environmental Trust, said the plan was too small to make much of a difference.
"This was window-dressing pure and simple," M