Campaigners celebrated in Holmpton, near Withernsea, yesterday after Inspector John Dowsett ruled in their favour on Tuesday.
Mr Dowsett said although there were pubs over two miles away from the George and Dragon, they were not easily accessible to people relying on public transport.
Taxis were expensive and not always available.
Mr Dowsett concluded that allowing the pub to be converted would result in the loss of community facilties.
Owner Charles Brokenbrow said he had to shut its doors in December 2017 because the pub was operating at a loss.
He appealed after to the Planning Inspectorate East Riding councillors refused his application to convert the pub in November 2018.
Villager Kevin Lawson said they'd had a bit of a get together as the good news spread - over a cup of tea.
He added: “It is the best news ever. People have been shaking my hand and congratulating us.
"We haven’t got the pub back yet but we have a better chance of it now.”
It is the second time in a century someone has tried - but failed - to close the pub. A staunch Methodist tried to have it shut in 1926.
But he was refused because the pub was a place where shipwreck survivors were brought to recover.
The Inspector said he'd been sent a statement from the company marketing the property saying it has been on the market since July 2017.
However there had been no viewings or offers.
He noted that when he visited there was no "for sale" sign and East Riding Council had queried whether the asking price was realistic.
He said the requirement to market the pub for at least a year had been met, but "it is not clear how actively this has been pursued or whether the asking price for the property was a realistic one."
Mr Brokenbrow told The Yorkshire Post in December that two previous owners had lost large sums of money, adding: “The problem was people just think you should spend money which isn’t their money.
"It wasn’t about making money but I couldn’t afford to keep losing money either."