The bloody Syrian civil war cost Istanbul votes over Tokyo to host the world's biggest sporting event in 2020, two influential International Olympic Committee members said.
Istanbul - which has been trying to bring the Olympic Games for the first time to a predominantly Muslim country - reached the final round of voting for the first time after four previous failed attempts.
Having edged out Madrid in a run-off vote after they both tied in the first round behind Tokyo, they lost heavily in the second round garnering just 36 votes to the 60 received by Tokyo.
There had been concerns that Istanbul could suffer from the fallout over the Syrian conflict, which has seen over 500,000 refugees cross over into Turkish territory, although several members denied it would.
Turkish Prime Minister Recep Tayip Erdogan has also been one of the most bullish in demanding bombing raids against the Syrian regime after they allegedly used chemical weapons against their own citizens.
Erdogan, who also harmed the bid in IOC members' eyes after his security forces used a heavy hand against anti-government protesters in June, was present for the final presentation in Buenos Aires and said sport and peace were inextricably linked.
The disappointment comes at a politically sensitive time for Erdogan as he faces a series of elections. The Turkish economy is looking increasing shaky after a decade of growth and the protests have polarised the country. The Olympic bid had already become a political issue well before the disappointment.
Turkey's minister in charge of ties with the European Union, Egemen Bagis, caused a storm last month when he suggested that anti-government protesters would be to blame if Istanbul lost the bid - a charge the country's main opposition party said was an attempt to "camouflage" any possible failure.
Longtime IOC member Prince Albert of Monaco said the unstable situation in the region harmed Istanbul's cause.
"The geopolitical situation certainly played a role," he said. "IOC members prefer sure-fire bets. Istanbul, like the others, was a really good candidacy.
"However, Tokyo offered a safe pair of hands. There is no problem with financing the Games, neither for the construction nor the organisation."
IOC vice-president Thomas Bach, favoured to succeed Jacques Rogge when he steps down as IOC president tomorrow, agreed that the instability hurt Istanbul's chances.
"There you have one candidature addressing more the sense of tradition and stability and another candidature addressing the longing for new shores," said the 59-year-old German lawyer.
"This we have seen in the past also with different bids and this time the IOC members - in a fragile world - have decided in favour of tradition and stability."
Bach, an Olympic gold medallist in the team foil fencing event at the 1976 Games, said that he and his colleagues had to take a long-term view of how the world would look in 2020.
"We live in a world in which it is difficult to predict how it will look in three months from now," he said.
"The members had to take the very difficult decision on how the world will look in seven years from now."
Istanbul's bid may also have been hurt by a string of doping scandals among Turkish athletes.
Hasan Arat, the tireless and dynamic president of the Istanbul bid, said he and his team were extremely disappointed but it had been a "fantastic learning experience" and he took great pleasure out of another consequence of the campaign.
"We may not have won the Games, but we united the nation. And for that, we can always be proud," he said.
Agence France-Presse, Associated Press