The Church Commissioners ruled that the sale of St George's Church in Gorton, east Manchester, to the Society of St Pius X (SSPX) should not go ahead.
One of its British bishops, Richard Williamson, provoked anger after saying he did not believe Nazi gas chambers existed. He later apologised.
The Diocese of Manchester said it had received 100 letters of objection.
Bishop Williamson's caused uproar when he told Swedish television historical evidence was "hugely against six million Jews having been deliberately gassed in gas chambers".
We welcome the decision by the Church Commissioners to prevent the sale of St George's church to the Society of St Pius X
Diocese of Manchester spokesperson
The Diocese of Manchester said there had been letters of objection to the sale from MPs, peers, Manchester City Council, the Council of Christians and Jews and the Roman Catholic Church.
A Diocese of Manchester spokesman said: "We welcome the decision by the Church Commissioners to prevent the sale of St George's church to the Society of St Pius X.
"The Bishop of Manchester made it clear in his submissions that such a sale was not in the interests of community cohesion, ecumenical relations or inter-faith work."
The decision followed a period of consultation by the Church Commissioners, which manages Church of England assets.
Richard Williamson's views on Holocaust
The SSPX said it could not comment on the decision at this stage.
The group was founded by a French archbishop, Marcel Lefebvre, in 1970 as a protest against the Second Vatican Council's reforms on religious freedom and pluralism.
In January this year, Pope Benedict XVI revoked the 21-year excommunication of four bishops in the Swiss-based group.
The Pope later issued a letter expressing his regret about the damage the affair had caused to relations with the Jewish community.
