Skyline is the limit as plans for £250m hotel thrown out

Business leaders said the massive development next to Haymarket Station – featuring shops, offices, cafes and restaurants, plus a 17-floor "leaf-shaped" hotel – would have been a major boost in combating the effects of the recession.

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Ministers blocked the plans, on the advice of planning reporters, saying they would spoil views of St Mary's Episcopal Cathedral's spires and the Castle Rock.

Tiger Developments said the scheme – which would have created InterContinental Group's first five-star hotel anywhere in Britain outside London – would have brought more than 2,000 jobs to the city.

John Nesbitt, managing director of Tiger Developments, said: "To say this is an opportunity missed is an understatement.

"Scottish ministers have turned their back on a chance to inject 250m into Scotland's capital.

"With strong support for the development among local businesses, the local community and Edinburgh politicians, our proposed development would have transformed a site which has remained derelict for 40 years into a thriving hotel and commercial quarter."

Tiger refused to say whether it might look at alternative plans for the Morrison Street former goods yard site, but business leaders claim Intercontinental is likely to walk away.

Graham Birse, deputy chief executive of the Edinburgh Chamber of Commerce, said: "In reaching this decision, Scottish ministers have set back Edinburgh's ability to respond quickly to recession and to rebuild an economy damaged by recession.

"This is a gap site outside of the World Heritage Site that is strategically important but has all the architectural benefits of a car park with a few puddles."

Mr Birse said a smaller development was unlikely to make financial sense to Inter- continental.

He added: "It will take a long time to find another developer with a similar proposal who is prepared to take the risk of encountering Edinburgh's conservative lobby."

The city council had approved the plans, but they were called in by government ministers. The council's planning convener, Jim Lowrie, described the decision as "disappointing".

A Scottish Government spokesman said: "Given that the principle of development on the site is not at issue, Scottish ministers hope the key stakeholders can work together to find a solution to the proposed uses, layout and design at Morrison Street which would allow the site to realise its potential."

Edinburgh Central MSP Sarah Boyack, who had supported local objectors, said: "At 17 storeys, the building would have completely dominated the skyline, detracting from some of the city's greatest views across the Old Town to the Castle and the spires of St Mary's. Not only that, the development would have been at complete odds with the surrounding buildings.

BUILDING 'WOULD IMPACT ON VIEWS'

WHAT the Scottish Government planning reporters said: "The five-star hotel building would rise above the height of the surrounding buildings and impact on key views of St Mary's Cathedral spires and Castle Rock.

"Although a landmark, it would not enhance the skyline.

"The impact on the city skyline would not preserve the setting of the World Heritage Site or prominent listed buildings which are landmark features within it."