Planning Minister Nick Boles has made a U-turn over a decision to grant planning permission for 180 homes and a primary school in Malmesbury.
There was anger yesterday when it was announced that the Gleeson Homes plan had been granted on appeal.
The application to build on land south of Filands was initially rejected by Wiltshire Council.
An eight-week hearing concluded last month and it was then announced that the appeal had been granted.
But last night North Wiltshire MP James Gray said: "A few moments ago, the Planning Minister, Nick Boles, rang me to say that the planning permission granted for the Gleeson development in Malmesbury had in fact been issued in error."
He added: "He tells me that he gave written instructions last week for this planning application to be ‘called in’, in other words to be decided by the ministers personally.
"Through some mistake, that instruction apparently did not arrive at the Planning Inspectorate, who issued the permission incorrectly.
"The minister has now instructed the planning permission to be withdrawn and the application to be ‘called in’ for his personal decision.
“In my 16 years as an MP I have never heard of this happening. First off there will be quite a fuss from the developers because one moment they had planning permission and the next it has been withdrawn.
“We should not give local people the wrong impression - this doesn’t mean that it won’t go ahead. The decision might be that he does decide it should go ahead but at least it delays it for a bit and gives them more time to make representation.
“I would much rather see the people of Malmesbury decide how many house they want and where they should be.”
Wiltshire Council’s core strategy says the Malmesbury community area must deliver at least 1.200 homes between 2006 and 2026.
A neighbourhood steering group of 21 have worked for six months to come up with a draft neighbourhood plan suggesting alternative locations for 330 new houses for the town.
This Saturday it will unveil the first draft of its neighbourhood plan and will go through several consultations.
Wiltshire and town councillor Simon Killane, who has been working with the group, said: “I was pretty gobsmacked - I didn’t believe it when they said there was an error.
"It’s actually given us a chance to push on with our plan and to make it stronger.
“I’m also really glad our MP, our council and our community are all behind it because we all believe fundamentally in the democratic process.
“We want Nick Boles to come down to Malmesbury. If he wants to make a decision about us he needs to see us.
"The big question is what weight do you give to the neighbourhood plan and how do you deal with the transition process from one policy to another?”
In a statement, Gleeson Strategic Land said: “The sustainable nature of this site was first recognised by Wiltshire Council in its early draft of the core strategy and the inspector’s decision letter clearly identifies the site as suitable for sustainable development.
"The community benefits of this development are significant including provision of a site for a new primary school, contributions to education provision and the New Homes Bonus of around £1.6m.
"We believe it is a very strong application which can deliver the new homes that are needed in the local area.”