Pride Edinburgh said discussions with the City Council and the Scottish Government had concluded that a physical event could not take place this year.
Organisers said current restrictions would not allow the event, which regularly draws more than 15,000 people to the Capital, to go ahead safely.
Instead, they promised a virtual event to celebrate Pride in Edinburgh this summer, adding that it was seeking to recruit new members in the future.
The news comes after the group, which has run Pride events for 25 years, was forced to cancel its silver anniversary parade in the midst of the coronavirus pandemic in 2020.
Announcing the decision, Pride Edinburgh said: “The entire organising team, and the trustees of Pride Edinburgh are deeply saddened that there will be no physical pride event this year.
“However, we believe and understand that the safety of both organisers and pride goers remains of paramount importance.
“Nonetheless, we are excited to announce our 2022 plans later in the year to bring back our physical event.”
It added: “We thank all our partners and sponsors and most of all the LGBTQI+ community of Edinburgh, Scotland and beyond.
“We know the Rainbow will always shine in our capital city.”
Many social media users reacted to the news with disappointment.
One Twitter account wrote: “This is such sad news that another year has to be cancelled,” adding: “We cant wait to be able to join everyone when you are able once again to come together.”