The Department for Communities and Local Government, which oversaw the decision, said ministers had thought “long and hard” about the £400 million proposal and that an inquiry was the only appropriate step forward.
But the joint venture behind the scheme – Everton FC have put forward the plans in conjunction with supermarket giant Tesco – and Knowsley Council had previously warned an inquiry in the current economic climate would put the scheme in jeopardy.
The development includes a new 55,000-seat stadium, 10,200 sq m Tesco store, hotel and 50,000 sq m of retail. It won permission from Knowsley councillors last month after Tesco submitted the planning application to council in January.
However Liverpool City Council objected to the scheme because of its size and potential impact on the city.
Knowsley Council leader Ron Round, said: “We are extremely disappointed as a public inquiry will delay the development – indeed this delay, in the current economic climate, places the entire project in jeopardy.
“We have searched long and hard for years to attract the right investor to Kirkby and this scheme cannot be equalled. At this point in time, there is no plan B for Kirkby and no plan B for Everton Football Club. We will do all we can to keep the scheme alive and make sure the future of Kirkby is not put at risk.”
The club, which has spent two years working on the proposal, also expressed its disappointment.
It said: “It is important to stress that this decision does not spell the end of the Destination Kirkby project - but it will, self-evidently, precipitate a period of reflection, assessment and re-evaluation."
The inquiry is expected to be held within the next 12 months.