East Riding councillors voted against granting planning permission for alterations to Beverley's famous Picture Playhouse, a well-loved live performance venue as well as a cinema, which closed two years ago.
But businessman David Fletcher, who wants to turn the building and the adjoining Sellit and Soon premises into a retail unit, said he may have lost the first round, but he will appeal.
A packed public gallery applauded a speech by campaigner Anna Ingleby, who described the Playhouse as a "stunning, well-known and loved live performance venue, home to many festivals, the oldest working cinema in the country which remains of national importance as a fine venue with excellent acoustics".
She said: "These are the opinions of over 106 people who have written to the council.
"Has the council ever had such a big response before?
"Not one says there is the slightest need for another shop in Beverley."
Until only a few days ago, campaigners were under the impression the sale was completed. Mr Fletcher has already had the seats taken out of the council-owned building and stripped it back to its original walls and glazed brickwork.
However the council now admits that the contract to transfer the property to Mr Fletcher was subject to his gaining planning permission.
Coun John Bird said that moves to dispose of the Playhouse were against the council's own cultural strategy which pledges it will "create local opportunities for artistic performance and, more importantly than that ,will develop venues".
He said: "It seems to me that if we let this particular building go, we are going in the opposite direction to our own published East Riding strategy."
Coun Polly Worsdale said
people in her own North Holderness ward had complained about losing a wonderful asset, and put forward four reasons for refusal.
With three councillors not voting – two because they had a prejudicial interest as trustees of the Memorial Hall which would have stood to gain from the Playhouse's disposal – the application for planning permission for change of use was finally refused by eight votes to five.
The disposal of the Playhouse would allow £500,000 to be poured into developing the Memorial Hall.
A second application for listed building consent for change of use was also refused.
Afterwards residents who had been regular theatregoers were jubilant.
Hugh Lambert said: "You got to Sheringham, Keswick and Knutsford, all small places but they all have council-run places. They subsidise leisure, why not an arts centre?"
Gordon Hewitt, another supporter of the Playhouse, added: "Beverley's been crowing for years about establishing itself as a cultural centre as the jewel of the East Riding and yet everything they do is contrary to their stated policy."
But Mr Fletcher said some councillors may have been misled by a misquotation about the Playhouse's listed stauus.
His legal advice was that he would "easily" win at appeal.
He said: "I believe the councillors have failed to follow officers' legal advice. They have no grounds for refusing that planning application. I see the result as a minor setback."
He said all the work done so far had been with the blessing of the East Riding Council.
He said it was acknowledged that the building needed a total overhaul, and it would have been impossible to do a proper survey with the seating and stage in place.
alex.wood@ypn.co.uk