Instead, the European Parliament voted for an alternative system of "Guideline Daily Amounts" (GDAs), in the wake of intense food industry lobbying.
The European Consumers' group BEUC accused MEPs of caving in to pressure by rejecting what the organisation says is the simplest and most informative advice on healthy eating.
The traffic light system involves marking food packaging with red, amber or green symbols depending on the levels of sugar, fat and salt in the contents.
BEUC says it has been endorsed by consumer groups, public health organisations and doctors, and is already in use in some of Europe's major supermarkets.
Monique Goyens, director general of BEUC, said: "Despite being presented with a wealth of independent research confirming that the vast majority of consumers wanted the colour coding system, MEPs have mystifyingly voted against it.
"One wonders how we are to convince lawmakers that the fight against obesity and the battle to improve public health needs to start with action today, not tomorrow."
"There is no doubt that today's vote is a very serious setback."
The leader of Britain's Labour MEPs, Glenis Willmott, said: "If we are serious about tackling heart disease and obesity, we have to help people understand how much salt, fat and sugar is in their food.
"That's particularly true for products like ready meals and prepacked sandwiches where the label is the only way of knowing how healthy something is."