Shropshire Council's north planning committee unanimously deferred the plans by Westerleigh for a crematorium and chapel off the A5 near Nescliffe.
Planning bosses had suggested it should be given the go-ahead but members could not support the current proposals.
Councillor Tony Parsons asked for the decision to be deferred for the authority to carry out its own viability assessment.
"I'm surprised that the needs assessment is one that has been done by the developer themselves," he said.
"It seems rather strange. I think we really need to look at where best any additional facility would best be in Shropshire."
The elderly population of Shrewsbury is set to grow by 54 per cent up to the year 2041, according to Shropshire Council officers.
The report that went before the committee said that on average over the last three years, both the Shrewsbury and Wrexham crematoria have been operating at 110 per cent of their practical capacity.
But Ian White, from Great Ness and Little Ness Parish Council, said the demand is not in Shropshire, but in fact Mid Wales.
He said: "There is not a crematorium in the whole of Mid Wales. The demand for a new one is actually in Wales so I suggest the correct place is somewhere in the Welshpool area."
Members echoed the views of Councillor Nick Hignett who said: "This is a well designed plan in completely the wrong place. The site is not correct."
Councillors were also concerned about comments from RAF Shawbury who said the noise from their helicopter flying school could disrupt the services and the smell from the nearby chicken sheds.
"We must have the views of the RAF considered again," he said. "There are a very important part of Shropshire and a very important employer. To put any of that at risk is completely wrong.
"I'm also very concerned about the smells from the chicken farm. It may not be a very pleasant place to play loved ones to rest."