Entrepreneurs Pennie Raven and Jonny Douglas, who hoped to transform Mount Pleasant into a community development, said they were shocked at Sheffield Council's decision to sell the site to a care home operator.
The pair, who are current 'guardians' of the 18th century site, hoped to carry out a £17 million transformation of the mansion and its grounds into around 200 flats, shops, offices and community skills club.
The Heart of Sharrow project would have seen social enterprise Avenues to Zero take on the site on a 250-year lease, with the works funded by socially-minded investors.
In a statement Mr Douglas and Ms Raven said "It is incredibly hard to understand the motivations behind this announcement and why officers are making this recommendation.
"The purpose of this tender for the sale/ disposal of Mount Pleasant was to select a preferred developer to work with to ensure the best use of this vital community and heritage asset, and we do not see how a care home for private profit over our 'for the community' scheme can be justified.
"Especially when Avenues to Zero Heart of Sharrow project has such widespread support from local residents, the surrounding community and other initiatives in the area, not to mention an incredible delivery team, experienced advisers, councillors and cabinet members."
Their vision was for six overlapping ‘avenues’, each focused on issues: food, housing, health, environment, skills and energy.
The statement added: "Whereas we understand that our scheme is innovative and might differ from traditional development - and may therefore need more discussion to understand -we do not accept the excuse that 'If we talk to you, we have to talk with all the bidders'.
"That is exactly what Sheffield Council should be doing to ensure this site is put to use providing value and serving the community as best it can. This is not just a building, it's the difference between making a thriving heart that can regenerate a community and polarising it forever."
The pair said they were still open to discussions and the council's head of property Tammy Whitaker said it still wished to work with them and possible get them involved in the ongoing redevelopment at Castlegate.
She added: "We really like Avenues to Zero ideas but felt we didn't want to stall them with the problems that a listed building can bring. We want to work with them at Castlegate - there's a particular vibe going on down there at the minute and I think if we can work with them on something there, they can work without the strains of a listed building."
Mr Douglas and Ms Raven added: "For us, the offer to 'work with us and do something down at Castlegate' proves a fundamental misunderstanding of what we're doing at Mount Pleasant. We are connecting up and resourcing the people and initiatives in the surrounding area to build a resilient and socially cohesive community that is better placed to look after and support itself; something we've been working on and investing in for the last four years."
They added they had asked the council for a copy of the report on the decision.