COSTA MESA -- State officials Wednesday rejected a $56.5-million bid from a Newport Beach real estate group to buy the Orange County Fairgrounds and will seek other ways to sell the 150 acres in Costa Mesa.

Craig Realty Group outbid six other entities when the state held an auction for the property in January, but the $56.5 million the firm offered for the fairgrounds wasn't enough for state officials, said Mike Naple, a spokesman for Gov. Arnold Schwarzenegger.

The Department of General Services, which held the auction and was in charge of selling the fairgrounds, rejected the other bids as well, including one that came from a partnership between Orange County and Costa Mesa.

"Please be advised that after careful consideration, today I have decided to reject all of the bids,'' said Ronald Diedrich, acting director of Department of General Services.

"The offers contained in those bids are not in the best interest of the citizens of California because they do not obtain the highest and most certain return for the state. I continue to fully share your commitment to selling the fairgrounds and the department will go forward to explore alternative means to promptly achieve that goal.''

It wasn't immediately clear what alternatives state officials will consider. Naple did not elaborate.

"The governor remains committed to selling the fairgrounds because he believes the state shouldn't be in the real estate business,'' Naple said. "The current bids were rejected because they are not in the best interest of the taxpayer. The state is in the process of exploring other alternatives.''

The sale faced many obstacles thrown up by local political leaders. The local political opposition was largely bipartisan as Assemblymen Jose Solorio, D-Anaheim, and Van Tran, R-Costa Mesa, worked on legislation to block the sale and the Costa Mesa City Council locked in zoning for the property so that it could not be developed for anything other than its current use.

"We knew from the beginning that the process was not designed to garner the highest bid, and the local community didn't want the fairgrounds sold at all,'' Solorio said. "This is good news for the state, Costa Mesa, and all Orange County residents who enjoy the OC Fairgrounds.''

Costa Mesa also decided to let voters in June approve restricting the zoning for the fairgrounds to its current use.

Costa Mesa Mayor Allan Mansoor warned the opponents of the sale to not drop their guard.

"I think it's great news, but I still want to emphasize the public needs to stay on top of this,'' Mansoor said. "It's because of all their efforts that this has succeeded. Everyone has called the governor and their legislators, but there are still a lot of unknowns as to the ultimate disposition of the fair.

"I'm certainly willing to work with the state, but the ball is in their court in terms of putting something forward that the citizens of Orange County can accept.''

Orange County Supervisor John Moorlach praised the decision and said it is possible Orange County would join with Costa Mesa to try to buy the property if the price is right.

"We've never foreclosed on that, but that would certainly do it if the dollar amounts are feasible,'' Moorlach said.     The governor's office had anticipated bids of $96 million to $180 million, Solorio said in January.

The joint bid between Orange County and Costa Mesa was for $6.5 million. Moorlach, whose district includes Costa Mesa, said he was authorized to bid up to $40 million.

Moorlach doubted the state could fetch a higher price than the Craig Realty bid.

"I don't know if [the governor is] going to do any better at another auction in this economy,'' Moorlach said.

There was no immediate response to messages left with Craig Realty seeking comment.

Most county leaders opposed the sale of the fairgrounds, though many supported it when lawmakers included the auction in budget-balancing legislation last summer.

Moorlach was among those doing a reversal because, like the others, he thought there were assurances the property would remain as is, the home of the annual fair, equestrian center and a weekend marketplace.

The final bids for the property were:

-- Craig Realty Group, $56.5 million;

-- Advanced Real Estate Services Inc, $56 million;

-- Facilities Management West, $55 million;

-- Anaheim Sports Holdings, $20 million;

-- Orange County/Costa Mesa, $6 million;

-- Forde & Mollrich Inc., $2 million; and

-- Tel Phil Enterprises, $1,000.