SYDNEY (Reuters) - Australia's largest supermarket operator Woolworths Group Ltd cancelled a A$1.8 billion (£1 billion) sale of its petrol stations to BP Plc on Thursday, after it was blocked by Australia's antitrust regulator.

The grocer, which wants to exit the business to focus on supermarkets, said it would pursue "alternative options" for the 527 petrol stations and 16 development sites, without giving details.

The Australian Competition and Consumer Commission blocked the deal in December because of concerns it would lead to higher fuel prices.

"It is negative at the margin, but I don't think it changes the overall direction and strategy of Woolworths," said Michael McCarthy, chief strategist at stockbroker CMC Markets.

Other options could include floating the business, finding another buyer or selling it to a private equity firm, he added.

Woolworths Chief Executive Brad Banducci said last month other parties had expressed interest in the service stations.

Fuel sold by Woolworths is supplied by Caltex Australia, which was an underbidder for the petrol stations. It stood to lose the supply contract under the BP deal, at a cost of up to A$150 million in lost earnings.

"Despite its best efforts, BP has determined the transaction cannot be structured to meet its strategic objectives," BP said in a statement.

(Reporting by Tom Westbrook in Sydney. Additional reporting by Susan Mathew in Bengaluru; Editing by James Dalgleish and Stephen Coates)