St Margaret's convent junior school at Midhurst is to close at the end of the summer term after takeover talks collapsed.
Seaford College, near Petworth, has failed to secure a deal with the Sisters of Mercy religious order which would have enabled the college to take it on as its own junior wing.
In a statement this week, trustees of the convent said negotiations had faltered over the school's large site in Petersfield Road, which Seaford had indicated it would want to lease.
This has sparked speculation the order prefers to retain the prime location as potential redevelopment land when the time is right.
The convent trustees said they were announcing the shutdown with 'great regret and sadness'.
"Despite undoubted goodwill on both sides, the negotiations over the site of St Margaret's School were eventually unsuccessful, leaving the trustees with the difficult duty of notifying parents of the closure," the statement said.
All teaching and support staff jobs will be lost.
School spokeswoman Julia Hughes refused to give numbers but said: "Obviously if there is no school, that is the knock-on effect."
She added: "The school will be doing business as usual until the end of the summer.
"All the clubs, trips, outings and sporting fixtures will carry on and the children's education will not be compromised."
The Sisters of Mercy order founded St Margaret's in 1888. Its senior school closed in 2001.
The loss of the 150-pupil junior school has been prompted because the teaching order's ageing nuns want to retire from their trusteeship.
Sister Patricia McGovern, mother superior of the convent and head of the trustees, said in a letter to parents: "All the sisters join with me in thanking each of you for your great kindness to us in the past and throughout this difficult and sad time for us."
Meanwhile, Seaford College headmaster Toby Mullins has indicated the college may be able to utilise some of its existing facilities to
accommodate some of St Margaret's pupils when the new school year starts in September.