The Illinois Health Facilities and Services Review Board voted Tuesday morning during a virtual meeting Tuesday morning.
Trinity Health had applied with the state to open Mercy as an outpatient clinic.
Under its $13 million proposal, the clinic would have provided the neighborhood with services like urgent care, x-rays and CT scans.
Community activists say turning the hospital into clinic would negatively impact the health of the surrounding neighborhood.
The same board sided with community members back in December when it unanimously voted to deny Trinity's application to close Mercy this year.
The Bronzeville neighborhood hospital and Chicago's oldest, serves mostly low-income residents, the elderly and people of color.
The next closest hospital is several miles away. Its closure would create what the community calls a health care desert on the South Side.