The decision was announced by the UK's Department of Energy and Climate Change (Decc), after the Planning Inspectorate recommended it be refused. The controversial 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 on Dorset's Jurassic coast, which is a Unesco world heritage site.
"There would be a residual significant adverse impact on the qualities underpinning Dorset and Isle of Wight AONBs (area of natural beauty)," it said. "Conflict between conservation of the significance of heritage assets, including a world heritage site, and proposals for development would not be minimised or avoided," the decision letter added.
Stuart Grant, project director at Navitus Bay, confirmed the company's disappointment and thanked the local communities and stakeholders for the high level of engagement and involvement in consultations. "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 stated this was not under threat from the project.
In May, MHI-Vestas entered into a conditional agreement to supply up to 960MW in 8MW V164 turbines - 121 units.
Navitus Bay was awarded in 2010 as part of the Round 3 series of offshore projects, starting at up to 1.2GW but was cut twice.
In 2012, the maximum number of turbines was cut from 333 to 218, to move the turbines further from shore. And last year the 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.