A judge quashed planning permission for the scheme, which was opposed by Islington Council but had been granted on appeal by a planning inspector.
The North London planning authority successfully challenged the approval for the project, earmarked by Ashburton Trading - the football club’s property arm - for a site in Hornsey Road.
As a result of the court ruling the proposals will have to be considered a second time by a planning inspector.
The planning authority had initially refused permission for the 78m block housing 450 students on the grounds that existing council policies did not allow tall buildings in the area.
The planning inspector had concluded the appeal should be allowed as the scheme was in line with council policy. This stated that buildings over 30m high are “generally inappropriate to Islington's predominantly medium to low character”. It did accept that "parts of the Bunhill and Clerkenwell key area may contain some sites that could be suitable for tall buildings".
The inspector had said in his report that "the inclusion of the word 'generally' in the policy provides for the possibility that there may be parts of the borough, not of medium to low level character, where a building more than 30 metres high would not be inappropriate".
He argued that in the part of Upper Holloway involved, such a building would not be "out of scale with its surroundings" and would not be in conflict with the policy.
The judge disagreed. He concluded that the proposed development did conflict with the policy which he read as meaning “tall buildings are inappropriate and will not be supported except in the Bunhill and Clerkenwell area". The judge said the quashing of the permission was "no criticism of the inspector".