How do I react to being denied a promotion while being given the responsibility due to years of experience?

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I recently applied to a requisition that was opened withing my organization. The position was advertised at a senior, which in my company requires a level of experience about 4 years ahead of where I currently am, or 2 more years and a masters (I have started my masters but am doing it part time and will be a few years out from finishing). I was still pretty confident I could get the position, and thought it might be a way for me to get a jump in my career.

I was given the position, but told that I would be maintained at my current level. To paraphrase, I was told that it was opened at a senior level, but if they thought someone at a lower level could do the work then they could bring in that lower level person. I pushed back, since this seems completely backwards to me. My manager said they would look into it, and came back when I asked again today (about a week later) they essentially told me that their hands were tied and they weren’t able to move me up but hoped I would still take it.

I’m still relatively early in my career (been in the work force about 6 years), but as a consistently high performer this is not the first time I have had a similar situation bite me. I have been with the company for about a year and change, having been a contractor there beforehand for 6 months. As part of pursuing my masters I will soon start building a commitment to stay with the company for multiple years

I see my options as follows.

A. Grin and bear it, keeping my fingers crossed that it is reflected in raises and fast tracking in the future even if I am unable to transition now

B. Take the position, and try and use it for a diagonal position either within the company or externally after having had it under my belt for a bit

C. Decline it, which is admittedly not a great look but will save me some headache and feel like a moral victory.

I fully recognize C is a bad choice, but I am feeling a bit pessimistic that taking on this current new round of stress and responsibility will net tangible benefits

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