The 3,500 capacity venue was to have been built on derelict land in the city centre and was expected to open in 2018.
Hull City Council's planning committee rejected the proposal, despite council officers recommending approval.
The Labour leader of the authority, Councillor Stephen Brady said he was "incredibly disappointed" at the decision.
The council has not yet given a reason for rejecting the application.
Mr Brady said the planning application would be resubmitted in the new year, but acknowledged that the committee's decision would "at the very least, mean a delay in commencing the development."
"The plans for the Hull Venue have received considerable public support, are hugely important for the development of the city and will put us on the map as a location for major events," he said.
"The development is absolutely essential to making Hull a top visitor destination and is an integral component of our legacy planning following on from our year as UK City of Culture in 2017.
Documents supporting the planning application claimed the venue would attract 240,000 visitors a year and bring an extra £21m of tourist money into the local economy.
Plans for a £36m music and exhibition centre in Hull have been rejected.