The Secretary of State's decision effectively ends any plans to build the 42-storey tower next to Brighton railway station.
Located on New England Square, the scheme proposed a 120m-high tower, including 146 flats, a rooftop garden, a hotel and a new public space.
The plans were unanimously opposed when the council's planning committee reviewed the scheme in April 2005, but the Beetham Organisation appealed the decision and a public inquiry was held in November.
Despite the blow, Hugh Frost, chairman of the Beetham Organisation, said it was still committed to building a mixed-use development on the site.
'We are reviewing the comments made in the inspector's report to the Secretary of State as a result of the public inquiry,' Frost said.
Allies and Morrison was unavailable for comment.