The University of Western Australia has pulled out of its deal to create a "consensus centre" run by climate contrarian Bjorn Lomborg and partly funded by the federal government.

The decision is a blow to Prime Minister Tony Abbott, whose office drove the push to fund the centre.

UWA appears to have bowed to pressure from staff and the public following news the think tank would receive $4 million in government funding. 

"I have today spoken to the federal government and Bjorn Lomborg, advising them of the barriers that currently exist to the creation of the centre and the university's decision to cancel the contract and return the money to the government," UWA vice-chancellor Paul Johnson said.

"The scale of the strong and passionate emotional reaction was one that the university did not predict," Professor Johnson said on Friday evening.

"It is with great regret and disappointment that I have formed the view that the events of the past few weeks places the centre in an untenable position as it lacks the support needed across the university and the broader academic community to meet its contractual obligations and deliver value for money for Australian taxpayers," he said.

The Prime Minister's office spearheaded the move to provide government funding for the think tank.

The idea was conceived in the Prime Minister's Office, with Mr Abbott and chief of staff Peta Credlin personally driving the decision to fund the centre, Fairfax Media confirmed.

The centre was to advise the federal government on reforming policy from poverty and social justice to food sustainability in the region.

In the talking points obtained by Fairfax Media, UWA said it did not plan to spend any money on the centre and it believed government funding would largely cover its cost. 

Revelations in April that the government had put up $4 million in funding for the think tank - roughly half the cost - sparked calls for the resignation of Education Minister Christopher Pyne.

The government has previously stated that UWA would contribute to the centre and the government was contributing only a third of its estimated cost. 

It is unclear what role Dr Lomborg will play at in the university's business school but Professor Johnson defended the decision to appoint Dr Lomborg an adjunct professor, an honorary position with no salary.

The Danish economist announced his planned move to the UWA's school of business and his appointment as Prime Minister Tony Abbott's adviser on foreign aid earlier this year.

While Dr Lomborg accepts the science of human-induced climate change, he is a controversial figure because he has argued that the risks of climate change have been overstated and it is more important to tackle problems such as malaria.

Labor and environmental activists heavily criticised the appointment, questioning why someone who played down the effects of global warming should be advising on policy concerning developing countries in the Pacific that were exceptionally vulnerable to climate change.

University of Western Australia pulls out of Bjorn Lomborg centre