Filey Town Council has been forced to scrap plans to move into the old police station in Murray Street after negotiations fell apart.
The authority was hoping to transform the disused building into new council offices and a civic centre for community use.
But despite extensive site investigations, viability studies and a public consultation on the move, the council has not been able to agree mutual terms with North Yorkshire Police and its offer to buy the premises has not been accepted.
A spokesman of the authority said: “The town council has been informed by North Yorkshire Police that the police authority will be reviewing its disposal options prior to offering the property for sale on the open market.
“The members of Filey Town Council are greatly disappointed with this outcome and will continue to monitor future developments with the property should any circumstances change in the forthcoming months.
“The town council would like to thank all the members of the public who have wholeheartedly supported this community project throughout the public consultation period.
“Members are extremely dismayed that the town council has been placed in a position whereby at the present time it is unable to carry out its planned proposals on behalf of the community and thus secure protection of this prominent building of local historical importance within the town centre.”
The plans were revealed at the end of last year, following months of secret discussions with the police force.
The announcement was followed by a public consultation to see what residents would like the space to be used for should the council acquire it.
The majority of those who took part in the consultation backed the authority’s plans to use the building as community space.
No financial details for the planned move were made public, although it is expected the council would have to pay out several thousand pounds to renovate the Victorian station if they did purchase it.