In a move that has upset Scottish Government MP's and officials, Edinburgh City Councillors have rejected official recommendations to take the controversial project from Edinburgh Airport to St Andrew Square in the centre of the city.
Instead, they backed a Labour amendment to take it only as far as Haymarket railway station in the west end.
The vote means the council will no longer need to borrow £231m to partially complete the project into the city centre.
The decision went against advice by council officials that a tram line from the airport to Haymarket could be loss-making.
Scottish Liberal Democrat leader Willie Rennie also called on Finance Secretary John Swinney to review the decision by Edinburgh City Council to opt for the truncated line. The Scottish government has previously said it would "consider the implications" of the decision in light of a "fundamental change to the business case".
Mr Rennie said: "The Scottish government will not want to fund this loss-making and low benefit-to-cost-ratio scheme.
"The Scottish government should intervene now before it's too late. Their action could help stop the
Haymarket scheme and resurrect the profitable St Andrew Square option."
A spokesman for Mr Salmond responded: "We will be delighted to have a public inquiry into the trams fiasco, and will do so once there is greater clarity about the direction of the project so that its full circumstances can be examined."
A further piece of bad news is that Transport Initiatives Edinburgh (Tie), the council-owned firm set up to deliver the tram network, had hoped to raise up to £28 million by leasing ten trams to Croydon in Greater London.
However, Transport for London has now said it is not interested in Edinburgh's vehicles, which are being stored in Spain.
Tie, which is widely expected to be axed after costs spiralled from £545m to £773m, has 27 vehicles worth £2m each. The current shortfall is estimated to be more than £170m.
David Gambles
