The Treasury Minister says his department refused loan requests from Douglas Corporation for the Cambrian Place development because certain criteria were not met.
The local authority was seeking a total of around £14.5 million for its plans to build a car park, public library and offices on the site next to Lord Street.
A joint statement from the Department of Infrastructure and Treasury says there were a number of issues with the proposals.
They included a lack of consultation, no tendering process for the contract and building costs which were deemed too high.
Treasury Minister Eddie Teare:
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