The council for Lecce, a province in the southern region of Puglia, turned down the request from Giampiero Khaled Paladini, the president of Confime, a confederation for Mediterranean businesses, to renovate a former tobacco factory to house the university.
Severo Martini, a councillor from the planning unit, said that after evaluating the project the municipality found there was little clarity on how it would be financed.
"But we also can’t ignore the national and international attention right now on Islam," he was quoted by Gazzetta del Mezzogiorno as saying, referring to the deadly attacks by Islamic extremists in Paris in early January.
"Above all, we must consider the wishes of our residents, who have opposed the idea of an Islamic university."
The project was first pitched by Paladini to the municipality in October last year.
The university would initially teach courses in philosophy, literature and theology, and would be open to all students in Italy and abroad, he told The Local.
Paladini, who converted to Islam in 2012, denied the project didn’t have support from people in Lecce, saying that about “80 percent are in favour".
"We also have plans to work alongside the University of Salento," he added.
"People can see the cultural and economic value the project could bring."
The idea was born three years ago, and has the support of several private donors as well as backing from the Qatar Foundation and Italy’s Union for Islamic Communities, Paladini said.
"Not a single euro will have to come from the local, regional or national government," he added.
Paladini was unfazed by the permit rejection for the first property and is determined to push ahead with the plans.
He has two more buildings in mind, both in Lecce, that can be purchased outright without the need for a renovation permit.
But the project is yet to be submitted to Italy’s Ministry of Education for approval.
Although the accreditation process takes time, there are no obstacles to the creation of a religious university so long as it meets all the required guidelines.
As well as concerns over safety, there have been some controversial reactions in Italy to the Paris shootings, with the mayor of Padua saying just days after that no more permits would be granted for the construction of mosques in the northern city.