World numbers one and two, Novak Djokovic and Rafa Nadal, led the complaints against the new surface, saying it was too slippery.
"After careful consideration I have decided blue clay courts will not be allowed next year," ATP executive chairman and president Brad Drewett said in a statement.
"I very much believe in innovation and exploring ways to enhance our sport.
"While the blue clay may have offered better visibility on television, there were clearly issues with the quality of the courts in Madrid this year which were not acceptable at an ATP World Tour Masters 1000 tournament," Drewett added.
"Regardless of colour we must first ensure that courts are safe and fair for players."
Drewett was keen to stress, however, that he did not want to put a break on new ideas.
"(Madrid tournament owner) Ion Tiriac has been a great supporter of the game for many years and I continue to encourage his ideas including the testing of blue clay at non-ATP World Tour events," he added.
"At this time however it's clear that further development is required before it can be considered for use at ATP World Tour level."