The hotly contested legal row over the compulsory purchase order to take the London Road Fire Station off Britannia Hotels has been lost by Manchester City Council.
Communities Secretary Eric Pickles rejected the council's public interest argument that the landmark building needed rescuing by forcing Britannia to sell. The council had lined up developer Argent to transform the empty building into a hotel.
Critics of the council say it made the case personal against Britannia owner Alex Langsam; the local authority has not intervened with the same energy to bring forward redevelopment of the Employment Exchange and former Mayfield station in the same area of Piccadilly.
Britannia argued that it has planning permission to turn the fire station building into a four-star hotel. The fire station closed 25 years ago and has been vacant ever since.
A spokesman for Manchester City Council said: "We are disappointed and surprised at this judgement. This landmark building has been lying largely empty and disused for a quarter of a century while under Britannia's ownership.
"Our clear and consistent goal throughout this process has been to bring this Grade II-listed building back into use so that it makes a positive contribution to the regeneration of Piccadilly rather than blighting it.
"We note that, as a result of the public inquiry, Britannia have made a public pledge to return London Road Fire Station to use as a high quality hotel as soon as possible. The people of Manchester will hold them to that promise and no one will be more pleased than us if they honour their words."