Health minister John Denham has rejected a plea by Coventry community health council for a £200m private finance initiative hospital in the city centre.
His decision appears to have united previously warring factions in a battle over the location of the new hospital.
Mr Denham has given the go-ahead for it to be built on the site of Walsgrave Hospital, four miles from the city centre and the preferred option of both Coventry and Warwickshire health authorities.
Coventry city council and the CHC backed the city centre option as providing an opportunity for regeneration in the city and because of overwhelming popular support for it.
They disputed HA figures that the Walsgrave option would be cheaper.
But a review of the costs of the two sites commissioned by Mr Denham concluded the city centre site would be more expensive.
Mr Denham told the CHC: 'I could not justify instructing the health service in Coventry to spend at least£1.8m extra each year on the cost of a new hospital when this money could be used to care for and treat patients.'
Mr Denham urged 'all sections of the communities' to unite in securing the new hospital, which was 'all the more important' because Coventry would get a new medical school and extra investment in cancer services.
Coventry CHC decided unanimously last week to back the new hospital, while the city council issued a joint statement with the HA and the two local trusts directly affected, accepting the decision.
Council leader John Fletcher said he was 'very disappointed' that a major regeneration opportunity had been lost, but it was necessary to look forward.
He accepted that the new medical school and extra cancer funds had added costs and complexity to the city centre site and pledged the council 'to do all it can to deliver Coventry's new hospital on the redeveloped Walsgrave site'.
Coventry HA chief executive Chris Howgrave-Graham said he was sure everyone concerned for the delivery of quality healthcare could now unite to deliver the new hospital.
If Mr Denham had opted for the city centre site, South Warwickshire CHC was set to appeal on the grounds it would have been significantly less accessible for 25 per cent of patients from the surrounding county.