Developer Citybranch has lost a public inquiry into plans to redevelop the Square shopping centre in Hale Barns, Cheshire, after local residents opposed the scheme.
Citybranch wanted to demolish the 1960s centre and replace it with a new 30,000 sq ft Waitrose, plus 14 further retail units, 51 apartments and 287 parking spaces.
Planning inspector Martin Pike said in his judgment: "The decision requires a balanced judgement to be reached between the merits of the scheme and those aspects which would cause harm.
"I consider that the improvements to Hale Barns and the other benefits of the scheme are not sufficient to outweigh my finding that the proposal is too large to be directly related to the role and function of the centre and its catchment, and is thereby in conflict with PPS6 and the development plan."
The Hale Barns Residents' Response Group, led by local vicar, the Rev Robert Hinton, opposed the schemes and raised £60,000 from donors towards legal costs.
Hinton said: "The decision is a triumph for common sense. This was not nimbyism. The community accepted from the outset that a facelift was appropriate but not something that would overwhelm Hale Barns, bring huge traffic congestion, and disrupt community life."
Citybranch director Adam Gross responded: "Obviously we are very disappointed with the appeal decision. We will review the inspector's report in detail before deciding on the way forward."