A proposal to build a 48-turbine wind farm in Cluddaun near Moygownagh was refused permission by An Bord Pleanála on Wednesday.
Refusing the project An Bord Pleanála said it was "not satisfied that the developments as proposed would not have the potential to impact negatively on the surface and groundwater hydrology”.
An Bord Pleanála also cited other reasons for the refusal including the exceptionally sensitive nature of the location of the proposed farm which is located near to protected habitats.
The Coillte plan was to be complemented by a 112-turbine project located nearby in Owenwinny, a proposal that has been put forward by an ESB/Bord na Móna consortium.
The two schemes had a potential investment of €825 million if they were approved and would have been the country's largest onshore wind farm.
The decision on the Owenwinny wind farm is not expected to be made until November at the earliest.
The Moy Valley Protection Group, which has been campaigning against the proposed Grid West project that would see the construction of a major 400kV power line through the region, welcomed the news that the Cluddaun wind farm had been turned down.
A statement from the group yesterday said: "The Moy Valley Protection Group welcome the fact that Coillte’s 48-turbine Cluddaun wind farm in Moygownagh has been refused planning permission by An Bord Pleanála. As a result it considers that Eirgrid’s 400kV Grid West proposal should now be cancelled given that it was to be built to exclusively carry the power produced by the 48-turbine Cluddaun and 112-turbine Oweninny wind farms."
The statement continued: "The granting of permission for the Oweninny Wind Farm is also considered to be in doubt as it is to be build on an adjoining site to the Cluddaun wind farm. The Moy Valley Protection Group condemns the wasting of public money by Coillte and the Government in attempting to build a wind farm in an unsuitable area of outstanding beauty against the wishes of the local community and without any consideration of their wellbeing."
The group also urged the Government to get Coillte to leave the wind energy business, to stop the waste of any further public money on projects like this, saying it could use the money which would be saved on more pressing areas like the health service.
It concluded: "The Moy Valley Protection Group will continue to work to ensure that the Oweninny wind farm and other proposed wind farms in the area are not built and that the Grid West proposal is cancelled, thereby saving the taxpayer and electricity consumers money and protecting the wellbeing of the community as well as its landscape."