The proposals to redevelop the former Ironbridge Power Station would have seen more than 1,000 homes built on the site, along with a retirement village, primary school, shops, a rail link, business, sports and leisure sites.
Shropshire Council's South Planning Committee surprisingly went against a recommendation from officers to approve the plans – citing concerns over the level of affordable housing guaranteed in the plans.
It came after a number of speakers at the meeting raised concerns about the impact of the plan on local healthcare and roads – and even Ironbridge's World Heritage Site status.
Harworth, which is behind the redevelopment and paid £6.4m for the site, had been proposing five per cent of the homes were affordable, considerably lower than the 20 per cent normally required by Shropshire Council.
The decision throws the future of the site into limbo and it is yet to be seen what the next move will be – although council officers warned committee members that rejecting the plans would likely lead to an appeal from Harworth – and a public inquiry.
The recommendation for refusing the plan, which came from Councillor Andy Boddington, centred on concerns over the lack of affordable housing, the impact on local roads and whether funding and plans would be enough to mitigate the effect, and that there was no firm agreement on plans for a new GP surgery.
Speaking ahead of the recommendation Councillor Boddington said he was confident they would win any appeal.
He said: "If we accept the proposal before us we will let Shropshire down by not building the affordable housing it so desperately needs.
"A community of maybe 3,000 people with just 50 affordable homes cannot be described as a sustainable community in the 21st century."
He added: "If we reject this application we will face an appeal and there is no reason why we should lose the appeal."
Earlier Stuart Ashton, representing Harworth, said that the firm had made as many financial concessions as it could, and asked councillors to approve the plan.
Under the proposal Harworth would have paid a £16.75 million contribution towards local infrastructure, ring-fenced for work directly associated with the development in areas like education and highways.
He said: "Financially there is simply nothing more we can offer."
He added: "After three years of deep discussions we now need you to determine the application today so we can decide how we proceed. I hope you will support this application.
Shropshire Council's head of planning, Ian Kilby, had warned councillors that they would face an appeal over the proposal if they rejected it, while the authority's solicitor said the proposal was 'policy compliant'.
Mr Kilby also said that council officers may not be in a position to defend the appeal, and it may be down to councillors themselves to argue the case.