Campaigners fighting to save a Surrey theatre claim a plan to restore it has been ignored despite local support.
The Redgrave Theatre has stood empty for 10 years
Farnham's Redgrave Theatre, which shut in the late 1990s, has fallen into disrepair and could be demolished as part of the East Street redevelopment.
Former town councillor Peter Marriott said the proposal would have included a nursery school opening in adjoining Brightwells House, a listed building.
Waverley council said it could not forgo the potential of the site.
Mr Marriott said the campaigners, who say 10,000 letters of support were sent to the council, were working with a nursery school group and a Farnham businessman.
The proposal would have leased the theatre, named after Sir Michael Redgrave, to a management company at a peppercorn rent.
"They would have had a low-overhead theatre to operate from and that would have made it financially very viable," he said.
"We had zero response, unfortunately."
The East Street development includes a new town square centred on Brightwells House, which will be refurbished.
There will be new apartments, shops, cafés, restaurants and a multi-screen cinema, with Sainsbury's remaining in its current position.
The scheme, jointly being developed by Sainsbury's and Crest Nicholson, has been in the pipeline since 1997.
A meeting of the council, acting as the landowner, on Tuesday gave formal permission for Crest Nicholson Sainsbury's to submit a detailed planning application.
"Waverley does not have the resources to reconstitute the theatre, refurbish the building, forgo the development potential of this key part of the site and support the, in Waverley's view, inevitable subsidy a local theatre requires," the council said in a statement.
"This is not a position taken lightly by the council and Waverley recognises the sincerity of those campaigning in favour of the theatre."