New town squares were planned for the heart of the development
Plans to kick start a stalled development scheme in Cumbria have been rejected by councillors.
The £77m New Squares superstore, flats and bars scheme in Penrith hit problems in 2008 when the recession led its Australian backers to pull out.
Supermarket firm Sainsbury's then stepped in with plans for a new store.
But on Tuesday night, Eden Council decided the proposed supermarket was too large. Sainsbury's said it would now focus on other Cumbrian towns.
The New Square plans had featured four new town squares, restaurants and sports facilities, as well as a 55,000 sq ft supermarket.
Sainsbury's submitted two options for a larger store, of either 78,000 sq ft or 90,000 sq ft.
But council planners advised the proposals be rejected, saying it was too large and there was the risk of a potential legal challenge based on rulings by the European Court.
Councillors voted to reject the plans at a council meeting on Thursday.
Paul Miller, regional development surveyor at Sainsbury's, said: "We're disappointed. We had a great scheme that we wanted to deliver.
"It was £80m of investment for the town and we saw it as a way of working with the community and the chamber of trade to bring something that was positive.
"There aren't many companies putting that sort of investment in town centres at the moment."
Eden Council said it would continue to progress with the plans for a 55,000 sq ft supermarket and has invited Sainsbury's to resubmit new proposals for reconsideration in February.