Architect Carey Jones, masterplanner Planit EDC and developer Langtree McLean want to build nearly 1,400 homes and a new public park on the long-abandoned former festival plot, and have been working on the £250 million project since 2005.
The commission's panel added that the scheme needed a 'stronger architectural ambition' and that therefore it could not support the application submitted last November.
CABE's comments have been rubbished by the design team, which has returned fire by declaring that the design review process for the project was 'flawed.'
A spokesman for the developer said: 'Langtree McLean is extremely disappointed by CABE's reaction to the planning application.
'Following a letter from CABE in 2005, Langtree McLean and its design team undertook a clear design evolution working with CABE and its advisors to improve the quality of the scheme. The changes made have much improved the scheme despite them resulting in extra cost and delay for Langtree McLean.'
The developer is also claiming that CABE reviewers had not 'properly considered' the latest application before drafting the stinging report which was published last week.
The spokesman added: 'CABE was consulted at every key stage. However, in November 2006, during the final stages of planning, CABE did not respond to the documentation and supporting information within the prescribed timescale.
'It appears the CABE review advisor had not reviewed the amended application proposals, despite having had them since November 2006, and was unable to properly consider this scheme. The final design review comments are not therefore reflective of the very positive changes which have been made.
'Nor are they reflective of the CABE enablers' views during this process.'
He concluded: 'Langtree McLean is therefore entitled to consider that the CABE process has been flawed in this case.'
But in a statement, CABE said it had reviewed the amended proposals. The watchdog said: 'The second review was undertaken with a full understanding of the design changes made since the previous review.
'Despite the claims of the project promoters, CABE found that the revisions to the design were not significant, and that overall the changes did not address the fundamental weaknesses identified in the first review.