Resource consent has been denied for the proposed subdivision of rural residential sections in Halfway Bush.
The owners of five properties in Dalziel Road want to subdivide their land into 34 residential lots.
The area in question covers about 16ha.
Dunedin City Council planners say small domestic sections would be inappropriate in the rurally-zoned suburb.
They cite potential overcrowding and traffic congestion among reasons for denying resource consent.
The council's also worried about setting a dangerous precedent in relation to allowing small lots in rural areas.
Several people, including neighbouring residents, opposed the subdivision.