Supporters of London's bid for the UK's first super-casino have expressed their shock at losing out to Manchester.
Mr Livingstone will continue to lobby for a casino at the Dome
The former Millennium Dome site in Greenwich, south-east London, and Blackpool had been favourites to win.
London Mayor Ken Livingstone said an opportunity to boost the regeneration of one of UK's most deprived areas "had been missed".
Greenwich's Chamber of Commerce leader Steve Nelson said he was "absolutely flabbergasted and very disappointed".
'Casino needs Greenwich'
The mayor said the casino would have helped the Dome in its ambition to become "western Europe's largest entertainment centre".
"The opportunity to secure employment opportunities for many hundreds in one of the UK's most deprived areas has been lost," he said.
Mr Livingstone said he would continue to lobby the government to allow a casino at the site.
The Greenwich bid attracted criticism when it emerged Deputy Prime Minister John Prescott had accepted the hospitality of Dome owner Philip Anschutz - without initially declaring it.
Mr Prescott denied allegations he may have used his influence to try to get the Dome a casino licence, insisting he had no say on the issue.
David Campbell, of Dome owners AEG, said: "We are very disappointed that Greenwich has not been recommended as the location for the first regional casino."
Meanwhile, Mr Nelson said he was "disappointed for the thousands of people who won't get the jobs that the casino would have brought".
"I'm disappointed that the hotels that were going to be built, aren't going to be built.
"I'm disappointed for all those tourists who won't be able to stay in Greenwich.
"I really do think that as much as Greenwich needed the casino... the casino needed Greenwich to be a real success."