The application, which campaigners said would harm existing traders and cause traffic congestion, has now been rejected by North Norfolk District Council's planning committee.
It voted 17-0 that the proposed 1,500sq m store was too big at twice the size recommended in an emerging new planning blueprint for the town. The decision follows the plan's rejection by local councillors earlier this month.
It does not quite signal the end of the saga, however, because the supermarket still has an appeal waiting to be heard.
Tesco is also believed to be attending an inquiry into the North Norfolk Local Development Framework (LDF) next week, where it is expected to attempt to get the classification of Sheringham changed so that it is no longer listed
as a secondary town for development.
Sheringham Budgens retailer Paul Burnell told Convenience Store: "I believe that Tesco is going to appeal the decision again, but it was a great result and fantastic to see all the councillors speaking out and making some good points against Tesco's plans.
"It's real bullying tactics from Tesco and unfair as the council doesn't have the same resources to fight applications. Tesco needs to learn a lesson that it can't just dictate to local councils.
"It's definitely been worth fighting."