Leading cancer experts said the decision regarding abiraterone (also called Zytiga) was "disappointing" and a "huge blow" to patients who have very few treatment options left.
Cancer Research UK said the draft decision by the National Institute for Health and Clinical Excellence (Nice) - which is still open to consultation - made "no sense" and Nice had used the wrong criteria to judge the drug.
Abiraterone was developed by scientists at the Institute of Cancer Research (ICR) and the Royal Marsden in London after the discovery that some prostate cancers can produce their own testosterone.
It works in a new way, by blocking the production of male hormones in all tissues, not just the testes, including both the adrenal glands and the tumours themselves.
A phase III trial, reported last year in the New England Journal of Medicine, involved 1,195 patients from 13 countries. All had stopped responding to standard hormone therapies as well as second-line treatments such as chemotherapy drug docetaxil.
Nice has ruled that although abiraterone is clinically effective, it is not good value for money for the NHS at the price set by the manufacturer, Janssen.
A spokeswoman for the ICR said: "We are obviously disappointed with this preliminary decision. We hope Nice will now work with the drug manufacturer to reach a solution that will make the drug more widely available to patients with advanced prostate cancer."
Professor Peter Johnson, Cancer Research UK's chief clinician, said patients had been accessing abiraterone through the Cancer Drugs Fund, set up by the Government to pay for treatments not approved by Nice, and it had become "one of the most requested treatments" from the fund.
He added: "This is because patients and doctors value the extra months of life it can give if prostate cancer has come back after chemotherapy. We need to find a way for it to be routinely available through the NHS."