The Monju reactor, in western Japan`s Fukui city, was designed to burn most of its own spent fuel, eliminating the need to deal with the nuclear waste.
But it suffered its first problems months after it went live, and has not worked properly since.
It would now need billions more for safety upgrades to be restarted.
"We have decided to decommission Monju because restarting it would require significant time and cost," chief cabinet secretary Yoshihide Suga said.
But officials are not giving up altogether, as it had been hoped the reactor would prove to be the solution for Japan`s scant natural energy resources.
They are understood to be seeking another fast reactor to replace Monju, despite opponents saying Japan should give up the programme and shift to direct burial of spent fuel as waste.
According to the Japan Times, Monju will cost at least 375bn yen ($3.2bn; £2.6bn) to decommission and will only be fully dismantled by 2047.
Local officials oppose losing Monju, which rakes in subsidies and provides jobs.
Japan cancels failed $9bn Monju nuclear reactor
21 December 2016
Read: 1419
Japan is a scrapping an experimental reactor which has worked for just 250 days of its 22-year lifespan and cost $9bn (£7.2bn).
-1780923278.jpg&h=190&w=280&zc=1&q=100)
