Joint developers CDP Marshall and Rothstone Estates planned a retail park with a new Lidl and B&M Homestore on the former Benyon Centre site off Middleton Ring Road.
The plans were refused by council officers under delegated powers because protected trees would be removed and a service delivery yard was close to residential properties.
A spokesman for the developers, said: “We are extremely disappointed and frustrated with the decision. We tried to work with the council for over a year and made significant changes to the plans to mitigate issues raised.
“More weight should have been put on the investment and regeneration of this large brown field site and we feel the council has missed a fantastic opportunity to attract investment to this part of the city.”
A council spokesman, said: “The location of this service yard would have an adverse impact on the residential occupiers in the early morning and late evening hours. Officers did request amendments to the scheme to overcome these issues, and did consider a revised scheme. The local planning authority must balance the benefits of any proposals alongside their potential impact on the local community.”