The Taylor Square Hotel, which includes T2 and the club formerly known as Manacle, was ordered last week to cease operating as a nightclub after the Land and Environment Court found it operated without an entertainment licence since February 2006 and had breached development conditions.
The venue can trade as a hotel with pokies and soft music, but cannot advertise as an entertainment venue or operate later than 3am.
The City of Sydney brought action against the venue after its day club was shut down in October last year for 50 violations of fire and safety conditions.
Lord Mayor Clover Moore called it a win for residents in the area.
While well managed late night venues help create a vibrant city, maverick operators can have a serious impact on safety and amenity, she said.
There have been ongoing complaints about this premises, particularly on weekends when a day club operates, effectively creating 24-hour trading.
Moore said the City was working to identify areas that have reached saturation and had formed a partnership with the National Drug and Alcohol Research Centre to study the effects of that saturation in Kings Cross and Oxford St.
The operators of Taylor Square Hotel did not indicate if they would appeal the decision.