Merton failed to defend its title in the London New Year's Parade, after rivalry between two theatre companies saw the council fail to enter a team.
The borough has collected first prize three times in the past five years, raising thousands of pounds for the Mayor's charities, and would have been aiming for a hat-trick of victories in 2014.
However chief designer Peter Wallder, who also runs The Colourhouse Theatre, downed tools when he discovered money raised through his efforts would go to rival theatre company The Polka.
He said: "It just grates with us that you are going to all this effort to raise money for the Polka Theatre when we have our own charity we would like to raise money for."
The Polka Theatre was chosen by Mayor Krystal Miller as one of her charities for her term in office.
Mr Wallder said: "The Colour House Theatre has been running for 19 years and has put on 90 productions but it doesn't get any funding.
"I would love to come back and make it happen but for my own charity. The Polka Theatre is a great organisation but I can't keep doing all that work when I have my own charity which needs supporting."
Dawn Jones, press and marketing officer at the Polka Theatre, said: "It's not really a big deal for us and I don't think it's a big deal for the mayor either. We are involved with lots of other activities with the mayor like her carol concert."
With no entry, the way was cleared for long term rival, Westminster Council, to snatch the crown with a Thunderbirds-themed crowd-pleaser.
Mr Walder said: "We always come up with the most creative, amazing scenes, but Westminster will just go to one of their theatres, get a boat and chuck some children on it but have no creative design.
"How can the judges not give them high praises every year when they are the host borough?"
A spokesperson from Merton Council said: "After taking part in the competition for eight years and winning last year, we decided to take a break and get geared up for next year's parade which will be Merton’s 50th anniversary as a council.
"This hasn’t affected our place in the borough league tables (still second) and we’re looking forward to working with all the dedicated volunteers who have helped with Merton’s float over the years."
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