Hard ground created by drought and five heatwaves has increased the risk of flash flooding.
The Reading Council sub-committee rejected the application at a meeting on Thursday.
The music festival begins on Thursday 27 August and runs until Sunday 30 August.
The gates at the Grade II listed site were damaged after a car was driven through them.
Charli XCX, rapper Dave and Chase & Status will headline the festival later this month.
Organisers have applied to make Reading Festival a four day event for live music.
The scheme is part of the council's work to tackle aggressive begging and anti-social behaviour.
The flats are part of the latest phase of Reading's major Station Hill development.
