Councillor Dr Paul Birch said there needed to be around six hotels near to the city centre and called for action to be taken to tackle the issue.
It comes as discount supermarket Lidl put forward new plans for a store at the site of the Mercure Goldthorn Hotel which could create 40 jobs.
The proposals, submitted to Wolverhampton Council for the scheme, will see the hotel demolished along with the business centre and one home.
Councillor Birch, who represents Blakenhall, said whilst he welcomed the Lidl store it would be a "great pity" to lose the Penn Road-based hotel.
He said: "There's so many stores we've welcomed already, including other supermarkets, and we still welcome them and people still enjoy them.
"But we're so desperate for hotel spaces. The Mercure has been there for years and it's a three-star hotel and we're desperately short of those.
"We've got some fantastic hotels, like The Mount in Tettenhall, the Park Hall hotel and others – but those two in particular, and we're really desperate for more hotels.
"So it's such a pity to take a pretty good hotel away [potentially] – in its day it was popular for Sunday lunches, and it's a fair-priced hotel close to the city centre, good parking and reasonable facilities.
"In recent years, it has been in decline, and the hotel sector has been through a tough time because of the pandemic – and supermarkets have seen a bumper year, but it's such a great pity because we need our hotels."
Councillor Birch, who has been vocal about his support for more hotels in the city, previously said developers would be "missing a trick" if they didn't convert Beatties into a premier hotel.
He added: "Even though they say there will be another hotel here and there, that particular one is gone and we probably need about six hotels in the city centre – ideally as close as possible – because if you're coming to do business here you want to be reasonably close to the city, so it's such a great pity they couldn't get a buyer like a Sheraton, another chain or even a Premier Inn – it would've made a good one of those, the city is really desperate for it.
"It was easy for local people as well as people who are in the city but the choices are becoming more and more limited. We need to get in now with creating alternative options."
It was revealed early last year that talks have taken place between Wolverhampton Council and top hotel chains the Marriott and the Hilton in a bid to bring a top class hotel to the city.
Councillor Ian Brookfield, leader of the authority, said in March this year at full council they will "prioritise and announce a major brand hotel development" for the city which is the culmination of years of work.
A spokesman for Lidl said about the proposals: "We are delighted to have submitted plans to bring a new Lidl store to Wolverhampton. If granted, this would mark a multi-million pound investment in the area and the creation of around 40 new full and part time jobs for the local community when the store opens. We look forward to receiving a decision in due course."