Addressing his Conservative party's annual conference in Manchester, Sunak said HS2 would no longer run on high speed rails to the city in northwest England, with the government spending the �36 billion ($44 billion) saved on improving current train, road and bus networks.
HS2, Britain's second high-speed train line, has suffered massive delays and ballooning costs.
However from around the end of the current decade, it plans to still operate between London and the central England city of Birmingham.
"I am ending this long-running saga," Sunak said Wednesday.
"I am cancelling the rest of the HS2 project and in its place, we will reinvest every single penny, �36 billion, in hundreds of new transport projects in the North and the Midlands, across the country."
The project's costs had almost trebled to more than an estimated �100 billion from �37.5 billion in 2013, even before taking into account the recent surge in inflation, making it one of the world's most expensive lines.
Faced with mounting costs, a big chunk of the project had already been derailed before Wednesday's announcement.
The government in 2021 pulled the plug on the route linking Birmingham to the city of Leeds in northern England.
HS2, aimed at faster journey times and taking capacity off existing busy routes, was at the forefront of the government's grand scheme to "level up" the economy by providing better infrastructure to the north.
London and southeast England have long been seen as benefiting from major transport projects, while the north has lost out.
"I say to those who backed the (HS2) project in the first place, the facts have changed," Sunak told the party conference.
"And the right thing to do when the facts change is to have the courage to change direction."
- 'Welcome but frustrating' -
Business and green groups gave lukewarm responses, welcoming investment remaining in the north but hitting out at missed opportunities.
"Whilst the announcement of investment in northern transport infrastructure is important and very welcome, the decision to end HS2 in Birmingham is deeply frustrating as this should not have been a binary choice," said Stephen Phipson, chief executive of manufacturing body Make UK.
"The strategic benefits of linking up London, Birmingham and Manchester was not simply about passenger transport, but about creating substantial new capacity for the movement of goods and freight on today's over-stretched network."
Greenpeace UK's head of politics, Rebecca Newsom, said Sunak's "decision to divert the money into over 70 road schemes shows how little he really cares about tackling air pollution, traffic and cutting carbon emissions.
"While investment in Midlands and Northern rail may provide better value for money, the full �36 billion... should have been redirected to public transport to truly help level up the UK, protect children's lungs, and help cut household costs."
Sunak said major upgrades would occur on key motorways, including the M6 serving cities in central and northern England.
Money would be spent also on faster train journeys between Manchester and other northern cities, including Bradford, Hull and Sheffield under a scheme named Network North.
High Speed 2 follows Britain's only such fast track, which carries Eurostar trains from London to the Channel Tunnel linking the country with France.
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