Dublin City Councillors has voted to halt the planned refurbishment of O'Devaney Gardens to house homeless families.
Council management had said temporary housing was needed because of the numbers of families in emergency accommodation.
But councillors said the idea of refurbishing units earmarked for demolition was the wrong solution.
Many also expressed concern for the 14 remaining families in the complex who feared the plan would interfere with the planned regeneration of the area.
Proposing the motion Lord Mayor Christy Burke said spending €4.7m on temporary refurbishment was a waste of taxpayer's money.
Cllr Burke said this money would be better spent on providing 35 permanent, stable homes.
He said Minister for the Environment Alan Kelly who had proposed the idea could instead introduce rent control or increase rent supplements as temporary measures.
Sinn Féin Cllr Janice Boylan said the environment in O'Devaney Gardens was not suitable for families to move into.
She pointed out that Dublin Bus refuses to go into the estate at certain times of the week.
Council management had urged councillors to agree to the proposal because of the scale of the housing crisis.
Assistant Chief Executive Dick Brady said there are 200 families in emergency hotel accommodation.
He said It was impossible to continue with family life in these circumstances.
Mr Brady pointed out that it will take a period of time before new social housing comes on steam as a result of the Housing Initiative.
He said something was needed to provide temporary family accommodation in place in the interim.
Dublin City Council Chief Executive Owen Keegan said the refurbishment would not interfere with the regeneration plan.
He said the regeneration plan was not ready to start and would take up to five years.
The two refurbished blocks could be the final phase.
But the Lord Mayor's motion to halt the scheme was passed with cross party support mainly from Left Wing representatives by 43 to 10 with 3 abstentions.
Some individual Fine Gael, Fianna Fáil and Independent councillors voting against and three Labour councillors abstained.
The latest figures show that, as of the end of February, 371 families with 803 children are housed in emergency accommodation in the city.