Duddingston House Properties and Urbanist Group proposed turning the historic building, designed by Thomas Hamilton, into a five star hotel complex.

But plans have been opposed by conservation groups including Edinburgh World Heritage and Historic Environment Scotland over the impact the hotel would have on the city’s Unesco World Heritage Site status.

The Hoskins Architects-designed project was scaled back in February after an initial bid was rejected by a single vote in December 2015 after councillors decided the original plans, which included two six-storey extensions, would damage the building’s Calton Hill setting.

The revised project proposed 127 rooms, 20 fewer than originally envisaged.

Councillors accepted the recommendation of local authority planning officials to refuse permission for the £70 million transformation of the A-listed neoclassical building amid concerns it would harm the historic nature of the site and the landscape of the city.

The city planners’ conclusion was that “the benefits to the city’s economy and to tourism by bringing an at-risk building into a suitable long term sustainable use are not outweighed when taking into account the impacts on the listed building the conservation areas, the World Heritage Site and the protected landscape”.

Following the decision, David Orr, chairman of joint developer Urbanist Hotels, indicated he will press on with the proposal.

He said: “We remain 100 per cent committed to delivering this, or another scheme in line with our agreement with the council, which runs until 2022.

“We are naturally disappointed although not especially surprised that councillors have taken the decision not to approve our proposals.

“It is especially disappointing and worrying that this decision was made amidst a backdrop of wilful misrepresentation and misleading campaigning by Edinburgh World Heritage and the Architectural Heritage Society of Scotland.

“Despite this concerted and very public campaign against our proposals, we will continue to fulfil our contractual obligation with the council to revive a building which has been allowed to slip into a state of disrepair and neglect for more than 50 years.

“Our revised proposal discussed yesterday is the culmination of 18 months’ intensive work and resources involving an investment of more than £3m. During this time we have taken time to listen to a wide range of stakeholders and heritage experts and taken their views and feedback on board, with heritage and conservation central to our plans.

“We produced a design solution which not only protects and promotes the magnificence of Hamilton’s centrepiece building but also has a viable and long-term investment plan in place to maintain it as part of the city’s living and breathing heritage.

“We need to be very clear that, despite what we have heard today, our scheme is the only proposal on the table that can realistically guarantee the future of the Hamilton building – both architecturally and financially. Without it, we are facing a very real risk of another 50 years of disrepair and misuse, which would be catastrophic for both the building and the city.”

A rival vision by Richard Murphy Architects and Simpson & Brown to turn the property into a music school has been approved but cannot proceed until an agreement between the City of Edinburgh Council and Urbanist Group expires.