A major blow has been delivered to Wellington City Council's plans to develop Shelly Bay.

The Court of Appeal's sided with community group Enterprise Miramar, quashing a decision by the council to grant resource consent for the development.

The project included construction of 350 new homes, an aged care facility and a boutique hotel.

The court's found the council made an error of law in its interpretation and application of a section of the Housing Accords and Special Housing Act when granting resource consent.

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As a result, matters such as the environmental effects of the proposed development weren't given appropriate consideration by Council.

It says the council must reconsider the application for resource consent afresh and consider whether or not to appoint independent commissioners.