Hutters in Mudeford, Dorset, accused The Beach House of changing the once idyllic coastline into a 'Magaluf rave scene' and a 'drinker's paradise'.
They claimed the restaurant changed from an upmarket venue to an 'open air festival' with DJs playing loud music.
Now they claim the quiet, family-orientated sandspit has become blighted with drunken and anti-social behaviour on weekends in the summer.
Customers have been accused of urinating against the sides of the £500,000 cabins, littering and aggressive and noisy behaviour.
Several hut owners then applied to Bournemouth, Christchurch and Poole (BCP) Council for a review of the Beach House restaurant's alcohol and music licence.
Officials ruled that the venue was not preventing public nuisance and ordered the restaurant to stop serving alcohol by 11pm, reducing its operating hours by 90 minutes.
The owners must also agree to a Noise Management Plan with environmental health officers to prevent excessive noise from music and customers in the future.
Mudeford Sandbank is a remote spit in Christchurch Harbour with 350 beach huts on it.
Cars are forbidden and the sought after spot can only be reached on foot, by ferry or a novelty land train.
It has become the home of Britain's most expensive beach huts, as the wooden cabins sell for close to £500,000.
The Beach House is currently the only restaurant on the sandy peninsula.
A fire destroyed the building in 2018 and the owners got permission for a temporary set up in three shipping containers while the council made plans for a replacement.
But seven years on a permanent building is still not in place after issues with council funding.
Gary Grant, a lawyer for the MSBHA, told the council meeting: 'Change is not always progress.
'When a venue goes from what was an enclosed sit down food-led restaurant to a packed open air music and alcohol-led beach party venue with DJs and begins to wildly damage what is a very special location, then it's time for the licensing sub-committee as custodians of the sandbank to step in and safeguard it for future generations.'
Mr Grant said the very appeal of Mudeford is its remoteness and escape from modern living.
Beach hut owners lined up to tell how the beauty spot had changed from being a peaceful space.
Tony Webb described the 'loutish drunken behaviour of the day trippers treating the place like it's a beach rave in Magaluf' and said the noise has become 'unbearable'.
He said: 'When challenged they become menacing, threatening violence. Some have threatened to burn my hut down.
'As all hutters I am happy to share the beach with day trippers as long as they behave in a civilised manner.'
Jojo Huggins said it now 'feels like an Ibiza rave'.
Elizabeth Pritchard said it is 'only a matter of time before there is a serious accident', claiming drunken customers got into boats 'with alcohol blood levels that would result in a hefty fine, if behind the wheel of a car'.
Paul Owen said: 'I have witnessed foul-language, arm-wrestling and vomiting, even while queuing with young grandchildren for an ice cream.
'This is not what the sandbank is meant to be.
'A space that should feel safe for children has instead been undermined by behaviour more suited to parts of Bournemouth beach - but unlike there, we cannot simply move elsewhere. This is our home.'
The Beach House owners accused the hutters of being 'snobs' who think they own the sandbank.
Barrister Gerald Gouriet KC, acting for the Beach House, said the pictures and videos used as 'evidence' of the problems showed 'no hint of disorder or crime'.
He said the sandbank was not in the 'private ownership' of the hutters but 'open to the public at large who come in their thousands to enjoy it'.
Beach House owner Mr Kim Slater added that he had been a licensee for 45 years and had never had anyone question his ability to run a licensed premises until now.
The MSBHA asked the licensing committee to restrict alcohol sales to table service with food, remove the open-air bar service, impose conditions to control noise and waste and have defined consumption areas.
Mr Slater called the measures 'Draconian and disproportionate'.
In making its decision, BCP Council said: 'The sub-committee has decided that it is appropriate to modify conditions on the licence and amend the licensable activities on the grounds that the premises are not upholding the prevention of public nuisance licensing objectives.
'The committee agreed that taking no action and leaving the current licence in its current state would not be an appropriate response to the concerns identified by MSBHA in bringing this review.
'To address public nuisance concerns, the committee determined that modifying licence conditions and removing late-night refreshment was the appropriate and proportionate response to reflect that the premises has grown and become a popular venue for non-resident visitors who wish to visit and enjoy the sandspit and the business has changed to remain viable.'
They found 'no evidence of undermining public safety or protection of children from harm'.
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