The Council turned down the proposal, which would have seen 600 new homes in the Jordanstown campus, after a recommendation by planners.
Alliance MLA Mr Stewart Dickson said he was delighted the Council had made the "right decision".
He said: "The development would have overwhelmed the local community, putting extreme pressure on local infrastructure and services, while causing irreparable damage to the Jordanstown area.
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"This is a victory for common sense. It is now time for the University to go back to the drawing board and consult with the local community to produce a sustainable, positive and well-designed housing development of a much lower density."
East Antrim MP Sammy Wilson said: "I, and my Council colleagues, Pam Barr, Stevie Ross and Billy Ball, have over the last two years raised concerns which local people have about the density of the housing, the traffic implications, the pressure on local services and the long term management of the site with the University and its consultants as well as making representations to the Planning Service.
"We know from the feedback we have had from the local community that there was strong opposition to the proposals as currently shaped and a number of the planning issues had not been addressed. The decision now ends the uncertainty which local residents are facing, though there is little doubt that this will go to a Planning Appeal. Either these proposals will need to be radically reassessed or the University will continue to face local opposition."
(CD/LM)
