North Norfolk district councillors ignored the advice of the town's planning advisors in choosing a Waitrose-backed out-of-town development over Tesco's proposed store.
The latest victory comes less than 18 months after the planning inspectorate turned down the retail giant's previous application on appeal, on the grounds it would harm the "vitality, viability and retail function of Sheringham town centre" and threaten small businesses.
Councillors favoured plans for The Greenhouse Country Store, an eco-efficient development supported by Waitrose, which would source food locally.
Friends of the Earth food campaigner Helen Rimmer said "communities up and down the country were fighting back against Tesco's takeover of towns and cities."
A spokesperson for Tesco said: "The councillors' decision is at odds with government planning policy to protect the vitality of town centres."