The youth justice reinvestment pathfinder scheme aims to reduce the use of custody for under-18s by providing councils with cash upfront for projects that divert young people from prison.
But the Youth Justice Board (YJB) has confirmed that the North East London Partnership, which is made up of Haringey, Islington, Newham, Redbridge, Tower Hamlets, and Waltham Forest, has quit the scheme.
The decision follows Birmingham's withdrawal from the initiative last October.
It means the scheme, which ends in November, will now be completed by just two of the original consortia – West Yorkshire and west London.
John Drew, chief executive of the YJB, said the north east London consortia quit because it was struggling to reduce youth custody numbers following the riots of August 2011.
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