Severn Trent has said it never considered selling part of its land to Warwick District Council for a permanent Gypsy and traveller site.
Last week district councillors were advised their plans to acquire part of the Severn Trent site in Stratford Road, Warwick, were not feasible.
And any attempts at compulsory purchase were likely to end in failure.
The district council does own some of the 40 acres off Stratford Road surrounding the water company’s sewage plant. And modern smell-reduction methods would have meant a cordon sanitaire around the site could have been reduced, making more of the land suitable for habitation.
To many councillors it seemed the ideal answer to avoiding disturbing designated Green Belt land.
But since last year Severn Trent has been refusing to sell its portion of the land for anything other than employment use.
A spokeswoman said: “With any planning applications on our land, we always consider our neighbours and whether development will help support the local economy.”