AIIB confirmed on Tuesday that it is not considering the funding of the Amaravati Sustainable Infrastructure and Institutional Development Project.
China-based AIIB had earlier agreed to provide a $200 million loan for the project.
The development comes close on the heels of the World Bank exiting the project after earlier considering a $300 million funding for it.
The World Bank clarified on Sunday that it took the decision after the Indian government of India withdrew its request for financing the project.
"The World Bank's Board of Executive Directors has been informed that the proposed project is no longer under preparation following the government's decision," said the World Bank statement.
AIIB's decision came as a fresh blow to the YSR Congress Party (YSRCP) government in the state which came to power about two months ago.
Amaravati is the brainchild of N. Chandrababu Naidu, whose Telugu Desam Party (TDP) suffered a crushing defeat in the recent elections.
Both the ruling and opposition parties have blamed each other for the World Bank pulling out of the project.
While the TDP has alleged that the World Bank dropped the project due to the complaints lodged by YSRCP while in opposition, the ruling party said corruption by then TDP government led to the decision by the multilateral agency.
( With inputs from IANS )