Plans to transform Edinburgh’s historic former Royal High School building into a luxury hotel have been rejected by the Scottish government.
Urbanist Hotels and Duddingston House Properties (DHP) made an initial bid to develop the listed building in 2015, but it was turned down by the City of Edinburgh Council.
The developers have continued to challenge the decision, and pressed forward with scaled-down proposals to turn the building into a "world-class" luxury hotel run by Rosewood.
But ministers said the revised plans would damage Edinburgh’s position as a World Heritage Site.
David Orr, chairman of Urbanist Hotels, called the decision “deeply disappointing”.
The government planning report describes the site as one of the most important neo-classical buildings in Edinburgh and warned the development would reduce it to a "subordinate structure set between the new hotel wings, which would become dominant features on the hillside".
But Orr said the plans were a "far lighter touch" compared to other proposals, and would have "respectfully honoured the structures as a centrepiece".
He added that the report failed to recognise the wider economic value of the hotel to the local area.
Orr said: "It is a poor day for inward investment in our vital tourism sector. Around 250 full-time jobs and a huge boost to the local supply chain would have been achieved: a £35m per annum GDP contribution will now not happen.
"It is now 50 years since the Old Royal High School had a proper use and we still do not have a solution that safeguards its future. This decision leaves a magnificent building more at risk than ever.
"As a globally significant city, Edinburgh would have been ideally suited to host a Rosewood hotel. It is extraordinary that during a national crisis, at a time when it has never been more important to support Scottish tourism and jobs, our country has been denied a world-class hotel to put it on a level with other European capitals. This will not help attract the return of the valued visitors that know us and the access to new markets that Rosewood patently has.
"We will be gathering our thoughts as to what we do next."
The Royal High School was built by Thomas Hamilton in 1829 and has been vacant since 1968. It is owned by the City of Edinburgh Council, which granted DHP a conditional ground lease after the company won a competition to develop the site in 2010.