Critics of the plan also condemned the fact that it would have seen the city losing a potential hotel site.
JDI Developments sought to turn the three-storey Anstey Hotel, in Clarendon Road, Southsea, into a 25-bed shared property that would have only had one kitchen.
Opponents pleaded with Portsmouth City Council’s planning committee not to accept the move, saying the city must keep its hotels as it attracts more visitors and stages larger events.
Councillors then decided to throw out the application after also having concerns over health and safety.
Addressing the committee, dismayed Lib Dem councillor Matthew Winnington said: ‘We should not be looking at houses in multiple occupation of 25, that should not be our aspiration.
‘This is just unacceptable, this comes across as a smokescreen for something else, and to say this would be for young professionals and students, just doesn’t wash with me.
‘This has planning permission for a guest hotel, and we are being told time and time again this city is short of hotels. We are told we need more hotels, yet here we are potentially taking away a hotel provision that exists.’
The committee heard how the hotel was at one point a hostel for the homeless.
Tory councillor Frank Jonas feared the number of people living inside would have been 50, taking into account partners and friends, who would have had to cram into one kitchen.
Simon Hill, of PLC Architects, which presented the application on behalf of JDI Developments, said changing the building’s use to a shared house would have seen a reduction in the number of people living there. And he said the transformation would have been positive.
Mr Hill said: ‘Unfortunately, this building had been tarred by the reputation it had, mainly as a hostel for the homeless.
‘We are a local housing agency who would like to see the building walk away from its previous uses and poor reputation it has been given.’
But Tory councillor Ken Ellcome, said: ‘This would be the largest house in multiple occupation in the city.
‘Our policies have never considered anything that big.’
Labour councillor Yahiya Chowdhury, who led refusal of the bid, feared the health of tenants would be at risk.
The committee voted unanimously against the proposal.