The shock decision by the communities minister could finally spell the end of a bumpy three-year journey for the contentious £120 million waterfront project.
Kelly, the MP for Bolton West, said she was not convinced by the planning inspector's argument that the 'excellent inherent' architectural merit of the project outweighed other considerations, such as the conflict with the city's development plan.
The ongoing tug-of-war between allowing new development in Liverpool and preserving the city's historic environment was a contributing factor.
In her decision letter, released today, Kelly says: '[I] consider that the harm to the setting of the World Heritage Site, and to the setting of and views from listed buildings and conservation areas, weighs against the proposals.'
The letter goes on: '[I] consider that the proposals would be of a high quality, though [I do] not consider that the proposed buildings would be appropriate in this location.'
The last time the Secretary of State rejected the recommendations of the inspectorate in respect of a major planning application was when John Prescott allowed Broadway Malyan's Vauxhall tower in London to go ahead, despite receiving advice urging him to refuse the proposals.
The public enquiry into the Liverpool development was triggered in January 2005, after developer Maro appealed following the committee's rejection of the first application.
It is not yet clear whether Simpson and Maro are willing to appeal against Kelly's decision.