A bid to replace a burned-out pub with shops and flats has been delayed, after the Co-Op was told to stump up £1m to fund affordable housing in Oxford.

It wants to build a four-storey block of shops and flats on the site of the former King of Prussia pub in Rose Hill, Oxford.

But Oxford City Council's south east area committee deferred the matter, because the development provided no affordable housing, and following complaints from residents about the size of the scheme. The plans are expected to be discussed again in January.

The King of Prussia was demolished during the summer after a suspected arson attack left it gutted. The Co-op's bid is for four shops on the ground floor, and nine flats above, but no affordable housing. The plan also includes upstairs space for community use.

Co-op property manager Richard Holmes said the company needed to open a new store because the current shop, in the adjacent shopping parade, was too small.

He added: "The crux of this matter is affordable housing. We believe strongly in the community and the first floor level is one for the community to use.

"We are a local business which puts money back into the community and we are only trying to do this to help everyone. It's not the real world to expect people buying a site like this development to put £1m into other uses such as affordable housing - it just doesn't happen."

Residents spoke out against the plan at the south east area committee, at Rose Hill Community Centre. Emma Riley, of Annesley Road, said: "It's higher than buildings elsewhere and although it has been broken up and looks nice, it is still a storey higher than other buildings.

"There is not enough parking for all the flats, shops and whatever else is going in there."

The Midcounties Co-operative bought the pub in August last year. It unveiled plans for the development earlier this year, saying it needed to create a new supermarket in Rose Hill, but withdrew the application in April after opposition from council planning officers.

Rose Hill councillor Ed Turner said: "The developers have been given more time before we make a decision, as the officers chose to recommend the plan for refusal only days before the meeting.

"We want to have a scheme we can approve - we don't want this site to be vacant.

"The Co-op is saying the development will not generate the £1m council officers have asked for - and that needs to be resolved."