The State Administrative Tribunal (SAT) has denied an appeal for permission to begin development at Point Grey.
Development company Tian An Australia had plans to build a 300-berth marina at the Point Grey peninsula, as well as construct residential properties and tourism facilities.
If approved, the project would also include a 2.5 kilomentre channel dredged across the Peel-Harvey Estuary.
There was uproar from the Mandurah community to stop the proposal, as well as from local councils, politicians and environmental organisations.
The Shire of Murray voted against letting the initial earthworks begin for the project in June.
However, Tian An Australia appealed the decision to SAT in October.
The panel discussed the issue for around four weeks, before the state body announced on Tuesday that it will uphold the Shire's decision to stop the initial work.
"In weighing up all of the evidence before it and given the finding that the proposed development is properly to be regarded as the first stage of a proposed future marina project, the Tribunal finds that the correct and preferable decision is to dismiss the application and affirm the decision of the respondent," the report concludes.
Member for Canning Andrew Hastie argued against the marina in Federal Parliament.
He thanked all of those involved in signing the petition and reaching the decision.
“It means the Shire was right to insist that the local community have a say about what happens in our backyard,” he said.
Shire of Murray President Cr. Davic Bolt said the issue still has a long way to go.
“The Shire has been under intense pressure in considering the application," he said.
“We plan to continue to ensure we scrutinise all details of this development, even though the State and Federal Governments have given the project an environmental green light.
“I remain particularly concerned that State and Federal government agencies can make such critical decisions to proceed with these types of developments, yet leave the responsibility, environmental risk and potential financial impost to the Shire of Murray and ultimately its ratepayer.
“Having no control over the ultimate decision but being expected to assume all of the long-term risk and responsibility is of serious concern to our Council.
“I remain hopeful the developer might consider a more appropriate proposal for this piece of land."
Tian An Australia can now appeal the decision to a higher court or resubmit plans.
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