The owner of the landmark former Guineys store has expressed his disappointment that an application to transform it into a hotel that would employ 80 people has been refused.
An application was made earlier this year to Dublin City Council to refurbish the derelict store and create a 44-bedroom hotel along with a craft beer hall and seafood restaurant.
However, planners rejected the application over the size of a proposed extension and a concern that it was contrary to a city plan to maintain the area as part of the "premier shopping area in the state".
Owner Noel Tynan - who also runs The Celt Pub and Le Bon Crubeen restaurant next door - said the decision "doesn't make economic sense".
Mr Tynan and his wife Clare bought the Guineys site after the store closed in 2012.
He said the proposed hotel would see the number of people he employs along with the pub and restaurant jump to more than 130 staff from the current 55 whereas if he were to open the premises as a shop he may employ as few as six extra workers.
"I'm just annoyed because we're doing something good," he said adding that his highly-rated restaurant has attracted the likes of actor Vince Vaughn and US Attorney General Eric Holder "who'd never be down on Talbot Street except for the job that we've done."
He said that they will make a renewed planning application for the €3m hotel project.
The plans for the hotel would have featured an extension at the back that would have accommodated a function room.
Permission for the development was refused by city planners on September 25, 2014.
As well as the issue over the change of use, planners ruled that the "height, design and bulk of a proposed extension" and the development's proximity to protected structures and would be contrary "to the proper planning and sustainable development of the area".
The project's architect, Anthony Whittaker, said that council officials have asked for the development to be reduced by one floor which would mean the hotel would lose six bedrooms.
"We're hoping to meet with Dublin City Council in the coming days. It's a pity that they're asking to remove the top floor because we need the bedrooms, but we have to make concessions" Mr Whittaker said.