Everton’s plan to build a 50,000-seat stadium in Kirkby, on the outskirts of Liverpool, has been rejected by the Government after a public inquiry.

The setback will come as a blow to Bill Kenwright, the Everton chairman, who had spoken of the need for the club to quit Goodison Park and relocate to a stadium that would be built as part of a £400 million development involving Tesco.

Kenwright’s view was that only by moving to a stadium with more commercial opportunities and the potential for greater match-day revenue could Everton hope to break into the Premier League’s “big four”.

But John Denham, the Communities Secretary, has decided that the project would breach shopping policy to discourage leading supermarket chains from sucking business away from town and city centres.

Denham had taken into account the fact that the scheme involving Everton and Tesco had the potential not only to be a catalyst for the regeneration of Kirkby, creating up to 7,000 short-term, long-term and supply jobs, but also to provide the Merseyside club with the stadium they claim they need to make progress.

The decision, which will be made public today, will delight the Keep Everton In Our City campaign group, which has worked to thwart the plans.The timing of the news will come as an embarrassment to Liverpool City Council, which will present its bid document today to be a host city for the 2018 World Cup. Despite being opposed to the scheme, council leaders had included it in their bid package.

With Liverpool’s stadium plans up in the air, there will be fears that the city may not have a suitable arena to host matches should England win the right to stage the World Cup.

Anfield has been included in Liverpool Council’s plan as a fall-back, but it is unlikely that the club would spend the funds needed to modernise the stadium. In its present state, Goodison Park would not meet the criteria for it to form part of the 2018 bid.