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Mallow representatives refused to make changes to the town's 2004 development plans almost unanimously, subsequently restricting the building of two storey homes on St Joesph's Road.
The wording changes were brought forward by town management, who will now have to settle with single storey dwellings.
Around 18 objections to the plans were lodged by local residents, raising concerns about the visual impact of the development.
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Councillors had been warned by Town Clerk Pat O'Connor that voting down the alterations would mean plans would "go back to the drawing board".
"We will go back in the queues and lose €25 million," said Mr O' Connor.
Town representatives accused management of failing to provide further information on the plans prior to the vote.
A number of councillors voiced anger that members of the management did not attend the meeting.
David O'Callaghan complained that management did not take councillors on a walk through the land where the development is planned to take place.
"I have grave reservations about this scheme. This plan is trying to make the area into a ghetto. We are already part of bad planning in Mallow, just look at Bridge St. When I brought this issue up last year I was treated like an errant schoolboy who did not have his homework done. The plan has been badly flawed from the outset," he said.
Following the council's decision, plans will now be re-examined by council officials.
(PR/JM)
