Developers were planning to restore the site - which dates back to 1829 – and construct two ‘inca-style’ terraces either side of the building.
But the plans by Urbanist Hotels and Duddingston House Properties (DHP) were thrown out after planning officials warned the 147-room hotel could put Edinburgh’s World Heritage status at risk.
It is the latest in a series of rows over developments in the city after councillors approved plans for 12-storey luxury hotel critics dubbed ‘The Turd’.
Conservation groups fear the hotels could see Edinburgh’s treasured World Heritage Status revoked.
But despite the rejection of the Royal High School plans, Urbanist Hotels vowed not ‘to give up at the first hurdle’.
The group insisted its contract with the council would last until 2022, giving developers seven years to lodge a new planning application.
Taco van Heusden, managing director of Urbanist Hotels, told The Edinburgh Evening News: “The council cannot do anything else with the site until that contract is up - as long as there are efforts [on our part] to move it on.”
Hotel development in Edinburgh is booming, with almost 1,700 extra rooms in the pipeline over the next few years.
Around 1,100 of these are in the budget sector, predominantly under Premier Inn.
Ricky Kapoor, commercial director of The Edinburgh Hotel Collection, told BigHospitality earlier this year that the luxury hotel plans were ‘good for Edinburgh’.
“We’ve got so many budget operators coming in that having two luxury hotels will help to create a more even spread of hotels,” said Kapoor.
“It’s good for business to have a range of hotels in the city.”