Developer G11 Capital Ltd had hoped to transform the empty Grade II listed building in Bridge Street into a new eatery as well as seven apartments on the floors above.
But planning officers refused permission for a number of reasons, including the nuisance that would be caused by noise and odours from the restaurant.
The shop was designed by town architect Samuel Loxton and built in 1892. It housed Taylor’s Music Shop, which sold new and used instruments and provided tuition and repair services.
Its striking stonework on the outside features musical instruments carved by Walsall sculptor John Lea, who taught at the Science and Art Institute, at the time it was built.
After the music shop closed, the property has housed a bank and been used as offices but it has lain empty for a number of years.
In the application, the developers said the restaurant would create nine full and part-time staff operating from midday to 11pm seven days a week, while the flats would be aimed at “young individuals who couldn’t afford a house on the open market”.
They said: “The site is in an ideal location for the proposed use as it sits in the city centre and popular tourist destination and surrounded by many other businesses, with a mix of bars, restaurant, retail and professional businesses.”
But Alison Ives, head of planning, said: “The proposed high density development fails to provide an acceptable living environment and level of amenity for potential occupiers.
“The proposed flats would provide no relief from noise and disturbance through comings and goings and general activities, including a close proximity of any extraction plants to the rear.
“The restaurant use on the ground floor would give rise to potential for odour nuisance from odours escaping from the premises and/or extraction plants resulting in unacceptable living conditions to the potential occupiers of the flats.”