The Lincoln economy would lose out on £60m if the court service refuses to move the city's crown court, county politicians say.
HM Courts Service has decided against a move from Lincoln Castle because it is not good value for taxpayers.
The council wants to build a new Magna Carta visitor centre on the current site of the court.
County council leader Martin Hill said the decision would mean the loss of £18m in lottery funding.
An HMCS spokesman said: "We have a duty to ensure that we get the best value for every pound of taxpayers' money spent and are not in a position to build a new court in Lincoln."
County councillor Rob Parker, leader of the council's Labour group, said: "We care seriously disappointed because the Court Service came to the county council to suggest the relocation of the court.
"The county has looked at different options for five years but each time we get close to some sort of deal the Court Service has moved away."
A Court Service spokesperson said it had looked at moving some of the crown court work to Nottingham, Grimsby, Peterborough and Huntingdon but none of the locations were acceptable.
Mr Hill said: "We are talking about huge economic benefits - if we could revamp everything up there we could be talking about a 50% increase in the value of tourism for Lincoln."
He said it represented the loss of £60m in economic impact - and 1,000 jobs in the next five years in the city.
"It is a massive prize - not only the fabric of the castle but also the economic benefits it can bring."
A law court has been in the castle for more than 900 years but the council said the court had outgrown its current location.