The Heritage Lottery Fund said the project lacked backing from Conwy council and was deemed "high risk".
The council has applied to have the Grade II-listed structure demolished.
However, a protracted legal dispute over the ownership of the pier is still rumbling on between businessman Steve Hunt and the council.
The bid for lottery cash from the HLF was made by the Colwyn Victoria Pier Trust, who described the request as a "last chance" for the pier.
Announcing that the funding bid was unsuccessful, HLF's chief executive Carole Souter said: "HLF takes its role of investing National Lottery players' money extremely seriously and we only support projects that we are confident can deliver long-term benefits.
"Unfortunately, we have not had a clear enough indication of strong support from Conwy County Borough Council.
"In light of this as well as the absence of other confirmed financial support and the potential for increased costs, the application was deemed high risk."
The campaigners trying to save the pier said on Wednesday they were "bitterly disappointed" by the decision.
Conwy's council leader Dilwyn Roberts said he realised the pier trust would be disappointed, stressing that the authority would continue to talk to the trust and Colwyn town council and "would welcome talking to them further about proposals for legacy".
However, restoration is not on the council's agenda following the HLF announcement.
"As the application was unsuccessful, the council's application to demolish the pier will continue through the planning process," said the council leader.

Anaya Ellick from Chesapeake, Virginia, does not use prosthetics. To write, she stands to get the proper angle, holding a pencil between her arms.
Her principal, Tracy Cox from Greenbrier Christian Academy, describes her as an "inspiration".
"She does not let anything get in the way of doing what she has set out to do," says Ms Cox.
"She is a hard worker and has some of the best handwriting in her class."
The girl reportedly beat 50 other competitors to get the special-needs category prize at the National Handwriting Contest.
This category rewards students with an intellectual, physical, or developmental disability.
Competition director Kathleen Wright told ABC News that her "writing sample was comparable to someone who had hands".
This is what her winning entry looked like:
Sponsors of the contest Zaner-Bloser said they planned to award each student $1,000 (Â£690).
They tweeted a picture of the student, happily holding her trophy.
Having no hands was also not an obstacle to 30-year-old pilot Jessica Cox.
In 2013, we reported on her inspirational example.  Also born without hands, she has been able to drive a car, fly a plane and play piano - all with her feet.

Last week a judge rejected Camille Cosby's attempts to avoid testifying, after she claimed she was protected by a marital disqualification law.
But on Tuesday, he agreed to a postponement, saying it would be unfair to deny her the right to appeal.
However, if the appeal fails, a hearing should happen soon after, he added.
A lawyer for the women said he expected to eventually be allowed to question Mrs Cosby, who has been married to the comedian for more than 50 years is also his business partner.
Mr Cosby's accusers' legal claim alleges he and his representatives sought to tarnish their reputations after they went public with their claims of sexual misconduct.
The star has filed a counter legal claim, contending the women are "engaged in a campaign to assassinate" his reputation and character.
The 78-year-old is also seeking unspecified monetary damages and said the women inflicted emotional distress.
He has denied the accusations.
Last week, prosecutors in Pennsylvania charged the comedian with an alleged sexual assault in 2004. It is the first time Mr Cosby has been charged with any offence after months of accusations by dozens of women.
He is currently on $1m (Â£675,000) bail.

Emergency services were called to River View Maltings, Grantham, at about 11:30 GMT, on Thursday.
A 42-year-old man was airlifted to the Queen's Medical Centre, Nottingham, where he is receiving treatment.
The 41-year-old woman, who is from Gonerby Hill Foot, is due to appear before magistrates in Lincoln.
Colwyn Bay's Victoria pier has failed to win a £9.6m bid for lottery heritage restoration cash and now faces demolition.
[NEXT_CONCEPT]
A seven-year-old student born without hands has won a US national handwriting contest.
[NEXT_CONCEPT]
Bill Cosby's wife will not have to give evidence on Wednesday in a defamation case filed by seven women accusing the comedian of sexual assault.
[NEXT_CONCEPT]
A woman has been charged with wounding with intent after a man was stabbed at a house in a Lincolnshire market town on New Year's Day.