Aberdeen city councillors said the plans for more than 500 homes at Broadford Works were an over-development with not enough affordable housing or community facilities, and too much impact on roads.
Broadford Works has lain empty since textile business Richards closed its doors eight years ago and is now the largest collection of Category A listed buildings at risk in Scotland.
The site has been plagued by vandalism and arson in recent years.
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If given the green light, proposals would have transformed the Category A listed buildings at Maberly Street into a 'urban village'.
It would have consisted of 517 flats with a restaurant, nursery, shops and underground car park for more than 150 cars.
The plans had support from the Labour Party on the council but did not go through.
Members of the development management sub-committee rejected the proposals by a margin of eight to four.
The committee's convener, Councillor Ramsay Milne, supported the motion, saying: "I don’t think we can leave this rotting tooth in our city centre any longer."
But other councillors accused developers of deliberately allowing the mill to get run-down.
Councillor Marie Boulton said: "We don't want to set a precedent where we allow developers to run down a site and then approve applications just because we are desperate to get rid of them."
In 2004 councillors rejected a previous approval for the site.
(NE/GK)
