Councillors unanimously rejected plans to demolish a former bingo hall and turn the site into flats.
It was said elderly people who used the hall in Portland Road, Hove, for more than 20 years would have been left with nowhere to socialise if the Thirties block was torn down.
The art deco building has been empty since it closed in August 2003 but many people had hoped it would be transformed into sheltered accommodation or a community centre for whist drives, keep-fit classes, concerts and meetings.
Members of Brighton and Hove City Council's planning committee rejected an offer of £80,000 to refurbish nearby Hove YMCA, in Marmion Road, from Gala Group, which owns the Portland Road building.
Derek Rist, 62, is head of an action group opposed to the development which produced proposals for a community centre on the site.
Mr Rist, of Marmion Road, said: "The decision gives everyone time to get together and decide what to do next.
"All we are asking for is somewhere for older people to go."
Don Brown, community development officer of the YMCA, said: "We will be holding meetings with Gala Group to work out a positive way forward to improve facilities for the elderly in the area.
"We will be sitting down and talking to a lot of people to work out exactly what we need and how much it will all cost."
Developers The Miller Bourne Partnership, of Church Road, Hove, had submitted proposals to build 54 one, two and three-bedroom flats, 22 of which would have met the council's affordable housing criteria.
In places, the building would have been six storeys high with balconies and 34 parking spaces.
Former mayor of Hove Jim Buttimer, representing the Older People's Council, said the offer to modernise the YMCA and provide a splash pool in Stoneham park was too little, too late. He urged the developers and Gala Group to reconsider their proposals.
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