US investment group RedBird Capital has pulled out of a deal to buy the Daily and Sunday Telegraph for £500m.

RedBird had a previous attempt to buy the Telegraph rebuffed by politicians as it was majority-funded by Abu Dhabi’s IMI group – which is owned in turn by the Abu Dhabi royal family.

A law change meant that foreign sovereign wealth funds could take a maximum stake of 15% in newspapers or periodicals.

The new bid complied with that rule, but it is understood that the government intended to submit the deal to regulatory review.

A spokesman for the group said: “RedBird has today withdrawn its bid for the Telegraph Media Group.

“We remain fully confident that the Telegraph and its world-class team have a bright future ahead of them and we will work hard to help secure a solution which is in the best interests of employees and readers.”

Sources close to Redbird insisted that they were confident that the bid would have passed a government review process, but cited negative articles toward the bid from the current Telegraph newsroom as a factor in shelving their interest.

RedBird itself has faced questions over the extent of investment it has received from China and Gulf based investors.

RedBird founder Gerry Cardinale had planned to expand the Telegraph’s reach and subscriber base in the US, believing there to be a gap in the market.

Among other investments, RedBird Capital owns the Italian football team AC Milan.

The Daily Telegraph has been in limbo for over two years, when the Redbird IMI consortium paid off the debts of the Telegraph’s previous owners, the Barclay family, hoping to take eventual ownership of the newspapers.