Mozambican authorities withdrew the licence of Venus Comercial Lda to use and exploit the Congo island in the Quirimbas archipelago in the northern Cabo Delgado province, provincial agriculture director Oliveira Amimo told Savana newspaper.
The company was granted the licence in 2007 to develop Congo island for tourism purposes, but authorities revoked it because no development took place on the island afterwards, Amimo said.
"We monitored the island and saw no infrastructure was [being] developed on the concession, as is required by law, so we decided to revoke the [licence]."
The 72,500 square meter island was illegally advertised for sale at US900,000 on an online real estate website at the start of June.
Another website advertised the same island for sale for US190,000, the newspaper reported.
Under Mozambican law, all land is owned by the government and can only be leased for set periods of time with renewable periods afterwards.
Congo island is home to 211 people, most of whom are fishermen who were unaware that their island was for sale.
"We saw some whites climb off a boat, but they did not talk to anyone," they told state newspaper Noticias.
The Mozambican coast is very popular, especially with South African holiday-makers.
Many South Africans manage or own resorts on the country's pristine beaches.
Several other incidents have also been reported of attempts to sell islands, including by South Africans and other foreign nationals.
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