The decision has been announced by the UK's Department of Energy and Climate Change (Decc) following a recommendation from the Planning Inspectorate that consent be refused. The project was being jointly developed by Eneco and EDF.
In its report, the Planning Inspectorate principally rejected the project on the basis of its visual impact of Dorset's Jurassic coast, which is a Unesco World Heritage Site.
Giving its reasons, the Planning Inspectorate said: "There would be a residual significant adverse impact on the qualities underpinning Dorset and Isle of Wight AONBs (Area of Natural Beauty)."
It added: "Conflict between conservation of the significance of heritage assets, including a World Heritage Site, and proposals for development would not be minimised or avoided."
Speaking about the decision, Stuart Grant, project director at Navitus Bay, said: "While we are clearly disappointed by today’s decision, we would like to thank the communities of Dorset, Hampshire and the Isle of Wight and all our stakeholders for the high level of engagement they've shown in the project, including their responses to our consultations and during the examination process. During the past five years the project team has carried out comprehensive stakeholder and community consultation.
"We will now discuss the options available with our shareholders and update stakeholders in due course."
Navitus Bay has arguably been one of the most controversial projects in the offshore pipeline. The Planning Inspectorate received a record number of responses for an offshore project as part of the application review.
The project has also faced opposition from local Conservative MPs and the local council. Many of the objections concerned Navitus Bay's possible effect on the Dorset coast's Unesco world heritage site status. However, Unesco has stated this was not under threat from the project.
In May, MHI-Vestas entered into a conditional agreement for the supply of up to 960MW in 8MW V164 turbines — 121 turbines.
Navitus Bay was awarded in 2010 as part of the Round 3 series of offshore projects. Originally, it had a capacity of up to 1.2GW but was cut on two occasions.
In 2012, the maximum number of turbines was cut by a third — from 333 to 218, to move the turbines further from shore. And last year the total number of turbines was further reduced to 194. The developers said the decision was in response to public feedback on the visibility of the turbines from shore.