Douglas Council says its discontinuing the service because of the increased financial burden on ratepayers.
The council says the decision was taken "with very great regret" at a special meeting held last night (Thurs)
The decision follows a proposal by the Council to amalgamate the Tramway Terrace stables site with the tramway hub at the Strathallan site at an estimated cost of £2.9 million. Last month it was decided that this scheme wasn't financially viable.
The horse trams have been running at a loss of over £260,000, with added loan charges leading to an impact on rates of over £420,000 yearly.
Council leader David Christian says whilst recognising the tram's long history, to continue their operation would place an unacceptable burden on the ratepayer for the foreseeable future.
The council says the tram horses will be relocated to good homes and the rolling stock will be offered to transport museums, whilst the Tramway Terrace, stable site and Strathallan will be sold.
Late news -
It has been announced that there will be a meeting on Wednesday 27 January to discuss the horse tramway, but at the present moment the trams will not return for 2016 summer season.