Sandhills Day Nursery in Lower Penn, near Wolverhampton, was the subject of widespread opposition ahead of its opening in March 2019, with residents furious that it was built on a green belt plot and to a far bigger scale than plans had originally indicated.
The sprawling facility was sold to childcare group The Old Station Nursery in December, but South Staffordshire Council has this week refused the firm's retrospective planning application.
The authority received 185 objections to the scheme, which was built with an extended surface area. Residents voiced concerns over damage to the green belt and extra traffic in the area.
Council planners said the scheme off Springhill Lane represented "an inappropriate development on the green belt".
They also said it failed to meet "the required target for carbon reduction" and had problems with onsite drainage.
It is understood the site is currently closed due to the Covid-19 lockdown, having previously been issued with an "at risk" notice by the council.
Councillor Nigel Cox, chairman of Lower Penn Parish Council, said: "This is exceptionally good news and the Parish Council – which rallied community support against this scheme – is very pleased with the judgment.
"We'd now like to see it returned to the state which is approved."
The decision has also been welcomed by Merry Hill ward councillors Simon Bennett and Chris Haynes. Mr Bennett said the scheme had "caused much distress for many residents during the building work and continues to cause issues".
"It is right that South Staffordshire Council has retrospectively refused planning permission," he added.
A planning application for the site was originally rejected by South Staffordshire Council in 2017. Permission was later granted after an appeal.