About 8 million kroons ($444,500) have been spent on the project so far, but the project team hoped to get another 32 million kroons to finish polishing Estonia's image abroad.
The controversial project drew criticism from local media that it was a waste of time and little new was being learned from the state-funded research.
Initiated by the previous government on June 12, 2001, Brand Estonia was devised by business representatives, including the Chamber of Commerce and Industry, and the Association of Large Enterprises.
The current administration hinted earlier this month that it would cancel the project and divert the funds to regional development.
Liina Tonisson, Estonia's minister of economic affairs and transport and communications, suggested dividing the project between the Ministry of Culture and Enterprise Estonia, a division of the Ministry of Economic Affairs created to promote Estonian businesses worldwide.
"Enterprise Estonia will continue the essential work on promoting exports and tourism as a part of the brand project," said Tonisson, adding the Cabinet has emphasized the importance of promoting Estonia as a paradise for investors.
As part of the project the Ministry of Culture, Tallinn's city government and the public television station ETV will present the country to foreign journalists who come to the Eurovision Song Contest in May.
Evelin Int-Lambot, Brand Estonia's project manager, said the government had made a reasonable decision. "Continuing the project in its present form would be impossible as the focus was lost," said Lambot.
"In the very beginning the idea of the project was to focus on things that would liven up the economy, like foreign investments, exports and tourism. In the last couple of months we started to discuss if we were the singing people or the skiing people," explained Lambot, referring to the Eurovision victory and the achievements of Estonia's Olympic skiers.
Interbrand, the consultancy that helped the Estonian project team, might not get the contract signed in November 2001 extended because of the Cabinet's decision.
According to Aili Ohlau, Enterprise Estonia's public relations manager, Enterprise Estonia will decide by March 14 whether to continue cooperation with Interbrand or find new consultants.
Tony Allen, managing director of Interbrand, said he was unsure about the future of the project.
"It was always the intention to focus the branding project on creating advantages for Estonia in tourism, inward investment and exports so we are not sure about the phrase 'theoretical branding'. The whole point of the project is to make tangible improvements to Estonia's ability to compete," said Allen.
Allen added Interbrand would like to continue working on the project.