A controversial proposal to allow the sale of bottled wine in South Australian supermarkets has been scrapped.

The plans were put forward by the State Government earlier this year but immediately divided hoteliers, supermarkets and liquor outlets.

The Government says after several months of consultations with the industry and the public it has decided not to go ahead with the plans.

Attorney-General John Rau says he now accepts that independent bottle-shops and the local wine industry would suffer.

Mr Rau says the majority of alcohol sold in the state is by outlets owned by Coles or Woolworths and going ahead with the plan would only increase their market dominance.

"There was no way that we could provide for a market opportunity in supermarkets which would benefit South Australian vineyards or South Australian wine producers only," he said.

"Nor were we able to prevent that opportunity being taken up by very large wine producers, the big corporates."

The proposal would have seen the creation of a new type of liquor licence for supermarkets with floor space of more than 400 square metres.

A discussion paper was released earlier this and about 60 submissions were received from individuals and industry groups during consultations.

Various groups voiced strong opposition, including the Australian Hotels Association and independent bottle shops.

The move was supported by some supermarket owners, but was criticised by the State Opposition and the Ceduna Council on the state's west coast because of concerns it would fuel alcohol-related violence.