Permission has been granted to build four blocks of flats on the site of the Tannery in the town's West End.
But members of Shropshire Council's central planning committee have sent the designs back to the drawing board for improvement and want to see improved plans before building work can begin.
Groups including Shrewsbury Civic Society, Historic England and Shrewsbury Town Council had requested that the designs were changed before the proposals were considered by the planning committee yesterday.
The Tannery building, which used to form part of Shrewsbury Sixth Form College, will be demolished to make way for the flats.
Under the plans for the flats put forward by Morris Guildhouse Student Partnership, three four-storey blocks would be built for undergraduates, and one three-storey block for management and post-graduate accommodation. More than 200 students would live on the site.
Speaking in favour of the plans at yesterday's meeting, Councillor Claire Wild, the authority's portfolio holder for University Centre Shrewsbury, said: "The university is going to make a tremendous difference to Shrewsbury and there are many positives about this application.
"I cannot see any reason why this should not go ahead. It would be so great for the town." Councillor Andrew Bannerman, who represents Coton Hill and Quarry, said: "There is a real opportunity here for a first class building which will complement Rowley's House."
Councillor David Roberts, for Loton, likened the current designs to an East European apartment block.
He said: "We have got a carbuncle up the road in the form of the market hall and it would be a shame to replicate that with these buildings. Let us spend a little bit more time and effort on this design."
Councillor Dean Carroll, who represents Bagley, urged his fellow committee members to grant planning permission to a building that Shrewsbury can be proud of.
He said: "This is not Oxford or Cambridge. This is Shrewsbury. The town tells a story through the physical structure of the buildings. We can see the impact each generation or age has left on the town, be it the Regency buildings or the brutalism of the Market Hall and Princes House."
Councillor Roger Evans, for Longden, said: "We can be proud of the university but can we be proud of this (the design for the halls of residence)? No I don't think we can."
In a statement to the planning committee the civic society said it has "significant reservations about design aspects of the scheme".
They include the gaps between the blocks, flat roofs and brise soleil panels.
Shrewsbury Town Council has called for the brickwork to match that of nearby buildings in the vicinity.
Councillors voted in favour of the application but agreed that Historic England should be consulted further about the design of the frontages and sides of the buildings prior to work commencing.