The local government ombudsman for the north and north east of England came down hard on the council in May 1997 after it emerged that seven councillors who voted in favour of the scheme were season ticket holders or regular attenders at Anfield Road.
Upholding a complaint by residents who objected to the roof of one of the stands being raised by 15.8 metres, the ombudsman was also critical of the way most Labour and Liberal Democrat councillors had voted along strict party lines.
The city council's bid to remove the smear of maladministration from its reputation failed last year in the high court, and again at London's civil appeal court.
In their original complaint to the ombudsman, Anfield Road residents said the football club's scheme to increase the stadium's seating capacity would involve a 52-foot wall being erected in front of their homes.
They argued the planning application would normally have been 'summarily dismissed' and 'why should it be be any different for Liverpool Football Club Plc?'
The ombudsman investigated and found that six councillors who had voted in favour of the scheme were Liverpool season ticket holders, and another was a regular attender at Anfield Road, but none of them had declared an interest.
The councillors' support for Liverpool was such that 'a reasonable member of the public would have felt that it might have been a substantial influence on the way in which councillors voted'.
The ombudsman also found that some councillors had voted with the party whip 'out of a misplaced loyalty to their political party' instead of exercising their own independent judgement.
Private party discussions took place before the vote and 41 Labour councillors voted in favour of the plans - and none against.
Thirty Liberal Democrats voted against, and only three - all of them Anfield Road season ticket holders - were in favour.
Lord Justice Henry told the court Liverpool fans had 'a particularly intense loyalty' to the club. Councillors who held season tickets 'should in my judgement have declared their interest, and it was maladministration not to'.
Although councillors were entitled to give weight to party loyalty and voting disciplines, they could not 'abdicate responsibility by voting blindly in support of party policy or part whip', he added.
'The block voting Labour controlled Liverpool at this time, with the Liberal Democrats the second party. Both parties, as is not uncommon in local government, were in the habit of meeting privately prior to the council meeting and agreeing how to vote.
'Here it is agreed by Labour that they would vote for the club being granted planning permission, and by the Liberal Democrats to oppose it.'
He concluded: 'There was ample evidence on which the Commissioner could conclude that the system of agreed voting in the circumstances was maladministration in this case.
'Accordingly, the challenge to the commissioner's investigation, report and findings fails. It has not been shown that she went outside the generous ambit of the discretion given to her and in my judgement this appeal should be dismissed.'
Lord Justice Chadwick said party loyalty 'may be a legitimate consideration' to be taken into account by councillors when voting - but that depended on the nature of the decision to be taken.
And the ombudsman had been 'plainly entitled' that party block voting in this case amounted to maladministration.
Liverpool City Council were refused leave to appeal further to the House of Lords, although it may still petition the Law Lords directly for permission to appeal.
The council was ordered to pay the action's legal costs.