Updated at 3:00 p.m.

A proposal to replace mostly surface parking lots with a six-story, mixed-use building in the heart of Dinkytown took a major blow Thursday when a city panel voted against approval.

The project has spurred a coordinated campaign to "Save Dinkytown" from what some neighbors view as a threat to the small business fabric of the neighborhood.

Those neighbors turned out in droves at the City Council's zoning and planning committee meeting Thursday, holding signs and testifying against the project.

In an unusual move, the committee voted 3-2 against staff recommendations to move forward with the necessary rezoning. The full Council will vote on the project next week, but they rarely overturn committee decisions.

Voting in favor of the project were council members Gary Schiff, the chair of the committee, and Kevin Reich. Opponents were council members Lisa Goodman, Cam Gordon and Meg Tuthill.

Council Member Diane Hofstede does not sit on the committee, but spoke against the rezoning.

Goodman expressed concern that the rents would be too high for small businesses to move into the new site. Gordon said while he was "impressed" with the development, questions remain about the future implications for the neighborhood.

"I think people are looking at that four-block area and they're saying well if it's all going to get upzoned like this, and it's all going to get redeveloped like that, we're going to lose everything," Gordon said.

The vote and preceding campaign to stop the project illustrate the fine line city leaders must walk as they pursue more density outside of downtown. It is also reminiscent of an effort last year to stop a mixed-use development in Linden Hills.

The Marcy Holmes neighborhood association submitted a letter of support for the Dinkytown project, though some Thursday questioned whether the group is representative of the area's residents.

Gordon Kepner, a longtime local resident, says better planning is needed for the Dinkytown area. "Uncontrolled growth in the human body is called cancer," Kepner said. "I think the political body needs to think about uncontrolled growth in a very serious way. Because once it starts, there's no drug to stop it."

Opus Development Company spearheaded the proposal, below, which would replace a plot of land that is 71 percent surface parking and features several small commercial buildings along 5th Street SE between 13th and 14th Avenues. The development would include 140 apartments, retail space and parking.

Two of the businesses that would be displaced, The Book House and The Podium, have already moved. That leaves Laurel Bauer, who owns those properties and the House of Hanson convenience store, in a bind. She had planned to close House of Hanson on July 31.

"It's very frustrating...we were all led to believe that the city was behind us and behind this project," Bauer said.