An appeal against Torridge District Council's refusal to grant planning permission for the hotel has been dismissed.
Plans for the 28-bedroom hotel at Duckhaven Stud were thrown out by Torridge's plans committee first in February and then again in April.
Applicant, Well Pict European Ltd has appealed against both decisions.
The company said the multi-million pound project, which was to involve Michelin-starred chef John Burton Race, would have created up to 90 jobs and regenerated the seaside village.
But the Planning Inspectorate yesterday dismissed the first appeal, saying the main issue in the case was the effect of the proposed development on the character and appearance of its surroundings.
In his report inspector Andrew Pykett said: "I am far from convinced the building and its associated paraphernalia could be rendered sufficiently inconspicuous to avoid unacceptable harm to the character and appearance of the Area of Outstanding Natural Beauty and the Coastal Preservation Area."
Well Pict European Ltd is pursing the second appeal.