The €150m overhaul would have significantly enlarged the Temple Bar hotel, and included an elliptical, flying saucer-like roof known as a "skycatcher".
Their redevelopment was conceived back in 2008, but work still hasn't begun.
And now the U2 bandmates have been told by Dublin City Council that they won't get an extension to their planning permission.
It means the project will have to begin within weeks or the original five-year planning approval, granted on July 16, 2008, will lapse. The project was put on hold in 2009 as a result of the recession.
In March, the Clarence Partnership – made up of Bono, The Edge and developer Paddy McKillen – applied to extend the duration of the permission.
But the council has now refused the application, saying the proposals contravene current planning guidelines.
"The Dublin City Development Plan 2011-2017 sets out the maximum permissible height for non-residential development in the inner city as seven storeys (28m)," the local authority stated in its ruling.
"The height of the building permitted (in the plans) is eight storeys over the greater part of the building which exceeds the maximum height permissible at this location under the current City Development Plan," it added.
If granted, the extension of duration would "materially contravene" the development plan and, therefore, would be contrary to the proper planning and sustainable development of the area, the council stated.
The height restriction was introduced after the original permission was granted in 2008.
An Bord Pleanala approved the Norman Foster-designed project, which had been going through the planning process for over a year and a half.
The approval allowed for the transformation of the 44-bedroom boutique hotel into a 141-bedroom, five-star hotel and spa – complete with restaurant, bar and fresh food market.
The plan caused controversy among conservationists as it involved the virtual destruction of the Clarence, an Art Deco building dating from 1937, four Georgian buildings from the early 19th century and Dollard House, which was built in 1886.
All are listed buildings and only the facades along Wellington Quay in the south inner city were to be preserved.