Mulgrave Properties pledged £3.4million of infrastructure contributions alongside its plans for 300 homes in Climping including a new roundabout on the A259.
But councillors backed scores of concerned residents, who argued not enough had been done to mitigate the impact of added traffic to the heavily-congested A road.
Speaking at Arun District Council’s development control committee on Thursday, chairman Ricky Bower said: “Here I see an opportunity for a significant financial contribution to the Oystercatcher junction and I am mortified that it is not actually included.”
The plans, for land west of Church Lane and south of Horsemere Green Lane, included replacing the existing A259/Church Lane junction with a new roundabout.
It also safeguarded land for future improvements to the Oystercatcher junction.
Dominic Smith, of West Sussex County Council’s highways, said negotiations had secured changes well in excess of those envisaged in Arun’s local plan.
Karl Roberts, Arun’s director of place, warned rejection of the plans could see the extra infrastructure cash lost if an appeal was successful.
But councillors said what was on the table would not mitigate the ‘severe impact the development would create’ or address safety issues across the wider A259 network, including the Comet Corner and Oystercatcher junctions.
The site is included in Arun’s new local plan as a key site to meet huge housing demand.
The plan will be scrutinised by a government inspector next month – but councillors supported the plan at full council in March.
But despite this support, some committee members questioned whether Climping could accommodate 300 homes.
Yapton’s Stephen Haymes said: “The conditions, if fully enforced, tie the applicant to producing a development that Climping could be proud of, however I feel the housing numbers are excessive for a relatively small parish.”
Middleton councillor Barbara Oakley raised numerous concerns, arguing that dealing with individual applications failed to take into account the wider impact of other major housing plans in the vicinity.
She said: “We are going mad in this country. This is directly the result of Conservative government policy and I say this as someone who has and worked for and supported the Conservative Party since I was 16.
“We cannot go on like this and we have to look at these applications holistically. We have got to stop this nonsense of looking at them all independently.”
Mrs Oakley also queried the loss of Grade One agricultural land. She added: “Doesn’t anybody ever read history? There will be another war at some stage. It will come. When it does this is and island. We could be starved into submission in a week and if we’ve destroyed all our agricultural land, what are we going to do?”
Councillors discussed deferring the plans for negotiations over increased financial contributions.
But they rejected the plans by nine votes to one, with four abstentions.
After a lengthy break, refusal reasons were voted on. They deemed the plans premature pending the outcome of the local plan examination and referenced the A259 issues.
In a rare move, Mr Roberts asked the committee to nominate two councillors to attend a potential appeal, if barristers would not fight Arun’s case.
The committee could not agree who should attend.
Speaking after the meeting, Climping Parish Council chairman Colin Humphris said he was pleased with the decision.
Mr Humphris, who was among the packed public gallery, said: “I was very pleased that they did actually listen and there was a recognition there are issues along the A259 west of the Arun.”