The governing International Automobile Federation (FIA) said in a statement that there had been four credible expressions of interest from companies interested in supplying a cheaper alternative engine from 2017.
The proposal had, however, failed to win approval at meetings at the FIA's Paris headquarters on Tuesday.
"The F1 Commission voted not to pursue this option at this stage -- however, it may be reassessed after the Power Unit manufacturers have presented their proposal to the Strategy Group," the FIA said on Wednesday.
It added that the discussions in the Strategy Group, which includes the six leading teams as well as commercial rights holder and governing body, and wider Formula One commission were 'constructive'.
Formula One has four engine makers -- Mercedes, Ferrari, Renault and Honda with the first two some way ahead of the others -- supplying the 10 teams.
"The parties involved have agreed on a course to address several key areas relating to Power Unit supply in Formula One," the FIA statement said.
It listed the four main items as a guaranteed supply, a reduction of the cost for customer teams, simplification of the technical specification and improved noise.
The current 1.6 litre V6 turbo hybrid power units were introduced last year to replace the old 2.4 litre V8s. While far more fuel efficient, they are also quieter and far more complicated and expensive.
"The manufacturers, in conjunction with the FIA, will present a proposal by 15 January, 2016, that will seek to provide solutions to the above concerns," the governing body said.
"The proposal will include the establishment of a minimum number of teams that a manufacturer must supply, ensuring that all teams will have access to a Power Unit.
"Measures will also be put forward to reduce the cost of the supply of hybrid Power Units for customer teams, as well as improving their noise."
The FIA said all parties had agreed to try and implement the change for the 2017 season at the earliest and 2018 at the latest.
A further meeting between the governing body and manufacturers will be held at this weekend's season-ending Abu Dhabi Grand Prix.
Sceptics had suggested from the outset that the alternative engine plan would struggle to win approval and was more of a power play to force the manufacturers' hands in a battle for control.
FIA president Jean Todt had warned that smaller teams might fold if engine costs were not reduced while former champions Red Bull threatened to withdraw after struggling to find anyone prepared to supply a competitive power unit.
Red Bull's predicament, after falling out with current supplier Renault, looks likely to be resolved with an expected agreement to continue for at least another season using units supplied by the French manufacturer.
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