A public inquiry was due to be held this month after Wakefield Council said it would not make a decision on the application at a meeting in February.
But the company said it had now withdrawn its appeal prompting fears from councillors that the site may become an “eyesore.”
Coun Denise Jeffery, the council’s cabinet member for regeneration, said: “Sainsbury’s management haven’t spoken to us about the plans but we have been told they’ve withdrawn their appeal.
“It would seem that from them doing so that their plans for the B&Q store is dead in the water.
“The site of the store is a big one which could now be sat their derelict.
“If we don’t find someone to take it on then it could just become an eyesore and it is located on a major gateway into Castleford, which is worrying.”
The plans were first due to be discussed at a meeting alongside plans for the £135m Five Towns Park at a Wakefield Council planning meeting on February 19.
But Sainsbury’s submitted the appeal to the Planning Inspectorate after hearing the council was mindful to refuse it.
A Sainsbury’s spokesman said the company did not know if it still planned to convert the store.
He said: “We have withdrawn our appeal and are considering our next options.”
A spokesman for B&Q said a date for the closure had not yet been finalised.
He said: “We are considering a number of options for the future of the B&Q Castleford.
“There are no immediate plans to close the store and we remain committed to serving customers in the Glasshoughton area.”