Mphil to Phd failed...help?

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Hi everyone.
I just got my feedback from my mphil upgrade and unfortunately I failed. I am a first year mphil student now and our school requires us to submit a 20,000 words on May.
Before I submitted my work, I sent the draft to my supervisor and the feedback was positive. However, now he said he believed I cannot continue as a PhD, instead he asked me to do a mphil in three years!
I tried to ask for a resubmission,(this happened last years on some students) and he rejected.
Can I argue again? I just want a resubmission. And if he was unsatisfied with my work, why shouldn’t he tell on draft feedback?

Want help!!!!!
Any ideas????

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