English Heritage objected to developer Thornfield's plans to demolish and area of Smithfield, one of London's oldest markets and a planning inquiry opened in November last year.
Communities secretary, Hazel Blears this week said that "demolition of the General Market Building, and the canopies that link it to the Poultry Market to the east and the Annex to the south, would significantly detract from the market complex as a whole."
The inquiry had focused on a deteriorating Victorian rail tunnel running under the site. Thornfield had argued that the tunnel was in such a poor condition that the tunnel roof structure needs replacing and that the only way to do this in the timeframe available is to demolish the buildings above.
However a representative from Network Rail at the inquiry said "they consider that the structure of the tunnel lids is not dissimilar to many other structures of the same age on the network, and that they are comfortable that it is safe as it currently stands."
"We clearly are disappointed by the Secretary of State’s decision," said a Thornfield spokesman.
"Thornfield will now give careful consideration to the government decision and comments contained in the inspector’s report. We will then bring forward, within a short period, revised proposals that take account of the Secretary of State’s comments.
"We have been working on this project for more than five years and are committed to carrying it through to planning permission and full development of the site. We will consult widely on our new proposals with a range of stakeholders including the City of London and English Heritage together with the Smithfield market traders
“We have a signed section 106 agreement which includes work on the Thameslink tunnels and it is vital that we maintain the momentum so that this important work can be completed on time"