It had submitted plans for a new short-term holding facility near Glasgow Airport, which would have replaced the Lanarkshire detention centre.
But Renfrewshire Council rejected the planning application for the new facility.
As a result, the Home Office said it will retain Dungavel House for people who are facing removal.
The Home Office said it had been "disappointed" by the council's decision to block a new holding centre.
It said the Glasgow Airport plan would have created a "modern and secure facility" for "those with no right to be in the UK".
A spokesman said: "We always made clear that the closure of Dungavel immigration removal centre was dependent on the opening of a new short-term holding facility in Scotland.
"As the application for a new facility at Paisley was rejected, Dungavel will remain open."
The replacement would have used to detain people under immigration powers for up to seven days before they were moved on to an airport for deportation or to an immigration removal centre.
The Home Office has said it believes detention and removal are essential parts of effective immigration controls but insists they are carried out with dignity and respect.
Officials say that when people are detained, it is for the minimum time possible.
They pointed out the most recent inspection of Dungavel by Her Majesty's Inspector of Prisons found that the centre was a safe place where detainees are given the support and help they need.
The Lanarkshire detention centre has attracted protests from opponents who described it as "racist and inhumane".

In September, the firm confirmed it was in the early stages of assessing an offer for the Premier League club.
But in a statement issued to the London Stock Exchange, the company said it had "terminated" its interest in a takeover bid and was "no longer considering making an offer".
Cain Hoy had until 10 October to firm up its interest or withdraw it.
Spurs are currently trying to finance a project to construct a new 56,250-capacity stadium.
When Cain Hoy confirmed their interest in a Tottenham takeover on 12 September, without the club's consent, Spurs swiftly issued a statement saying they had met company representatives but added there were "no ongoing discussions".
Instead, the club said it was focused on the new stadium development and the season ahead.
When contacted by BBC Sport regarding Cain Hoy's withdrawal of interest, the club said it had nothing further to add.
Cain Hoy's latest statement, however, did leave open the prospect of the company renewing its interest after a six-month restriction, which comes into place with immediate effect in accordance with the City Code on Takeovers and Mergers.
Tottenham plan to move out of their White Hart Lane stadium by 2017, but a legal wrangle means they will have to find a temporary home venue for the 2017-18 season.
But West Ham would likely block any move from Spurs to ground-share at the Olympic Stadium, according to Hammers' vice-chairman Karren Brady.
Other potential ground-shares include Wembley and Stadium MK in Milton Keynes.
The Home Office has abandoned plans to replace the immigration removal centre at Dungavel House.
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American investment company Cain Hoy has said it is no longer considering making an offer to buy Tottenham.