S G Investments were seeking to build a new Windsor Ex Services Club on the site in St Leonards Road and construct eight three-storey townhouses.
But councillors on the Windsor urban development control panel unanimously threw out the proposal at the Guildhall last night.
They refused the project saying it was too big, would harm the nearby protected sycamore trees and conservation area and cause parking problems.
Objector Peter Kingswood, a retired architect, said the proposal was 'over development' and like 'putting a litre into a pint pot'.
The hospital was built in 1918 and one speaker called for it to be refused purely on historical grounds, asking for it to be listed.
In objecting, Cllr Jesse Grey (Con, Datchet), said: "I am at odds with the design layout and the size and I feel there are too many houses.
"It is almost like a rabbit hutch and feel they have gone for too many."
His views were echoed by Cllr George Bathurst (Con, Castle Without) who said the developer was trying to 'squash' too many properties in.
The club closed its doors in June and chairman George Kermack, who backed the plans, told the Express last month it had 215 members, but membership had 'nose-dived'.
Christian Peal, speaking for the applicant, said the club building was seen by many as an 'eyesore' and not in keeping with the conservation area.
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