The government's new planning policy, which it claimed would give added protection to town centre stores, has fallen at the first hurdle.

The new framework was revealed in Planning Policy Statement 4 (PPS4) in December and intended to strengthen the 'town centre first' rules that apply to new retail development and govern building supermarkets outside town centres.

But the government's failure to intervene in a controversial supermarket development near Whittlesey, Cambridgeshire, has dismayed opponents who believe that a dangerous precedent has been set.

Fenland District Council approved the development against the expert advice of planning officers. The local government office then referred the decision to the Secretary of State, who chose not to intervene and the proposal was given the green light.

In a letter to the council, Lindsay Speed from Go-East, the regional arm of government, said: "The Secretary of State is satisfied that the issues raised do not relate to matters of more than local importance. He has therefore concluded that the application should be decided by Fenland District Council."

Retailers fear that this interpretation of the rules could become standard for future referrals. The Association of Convenience Stores (ACS) has written to government warning that town centre protection is ineffective and has called for immediate intervention to prevent long-term damage.

ACS chief executive James Lowman said: "The new policy was sold on the basis of it strengthening town centre protection, and yet in its first months it has failed to protect Whittlesey. This is early warning that something could be going badly wrong and we are calling on government to act quickly to ensure that councils and government offices are capable of implementing the new policy."