The project's refusal is likely to spark furious opposition from The Star, business groups and the tourism sector, who argued the project would draw tourists and ease a shortage of luxury hotels.

But the decision will be welcomed by some residents, prominent architects and the City of Sydney who argued the project would be out-of character.

In 2018, The Star lodged ambitious plans for a luxury 220-room Ritz-Carlton hotel and 204 residential apartments, as part of a half-a-billion dollar gamble to lure wealthy Chinese tourists.

The proposal also included a neighbourhood centre, library and function spaces.

There were more than 25 submissions against the plan, which meant it was referred to the Independent Planning Commission in June.

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The Star's plan was frustrated by the department''s opposition, partly due to "unacceptable visual impacts due to its scale" and poor design.

This rejection of the proposal unleashed a torrent of criticism from some development players and high-profile media supporters of the tower, including 2GB's Alan Jones and News Corp's The Daily Telegraph.

Amid intense debate, Ms Berejiklian intervened to direct the Greater Sydney Commission to complete a snap review of Pyrmont's planning controls to make sure they were "consistent with the government's vision for its future".

The results of the review recommended developing a masterplan for the Pyrmont precinct considering the character and potential of its various districts, and establishing a timeframe and options for implementation.

The three-member IPC panel said they considered the findings of that review and acknowledged The Star's proposal was "located within a precinct which is evolving in terms of strategic context".

“The commission takes the view that the outcomes of the Pyrmont review support an assessment of the application on merit against the existing statutory framework and strategic context of the area,
as opposed to a potential future context which at this stage is not yet known."

Ms Berejiklian said in October that new planning controls to be developed by the government would see Pyrmont and the precinct west of Sydney Harbour become the "gateway to the CBD".

Planning Minister Rob Stokes said the government would "immediately" move to amend planning controls with a focus on jobs and economic activity to support proposals to develop the area.