The decision was taken by owner Roman Abramovich and the Chelsea board after witnessing negative global reaction to the Super League.
There was a fear that it could do reputational damage to a club which prides itself on its anti-Semitism and community work.
Questions were raised internally as to whether fans would respond to the club if it continued with a proposal which has gone down so badly.
The decision was made earlier on Tuesday before protests started outside Stamford Bridge.
It is understood Chelsea was not one of the main drivers of the Super League idea, but felt it had to get on board when it was presented to them late last week.