Members rejected the advice of planning officials and agreed with heritage groups that the proposals for a mixed-use development at Haymarket would dominate the surrounding buildings.
The application for the 1.6ha Morrison Street goods yard, currently used as a car park, was submitted by the EDI Group, Edinburgh City Council's own arm's-length development company. The scheme would have comprised a pedestrian arcade lined with shops and cafes, a supermarket and offices.
EDI claimed that the project was needed to maintain Edinburgh's status as a leading business and financial centre. Alan Henderson, the council's head of planning, agreed that it would be a high-quality addition to the capital. But councillors were concerned that a proposed six-storey building was too large.
Historic Scotland warned that the buildings would detract from the western entrance to the world heritage site. EDI has said that it will produce a new scheme for the site.