The Whangarei District Council has scrapped its plan to build a Hundertwasser Art Centre in the Northland town.
The district council voted on Wednesday to take the $13 million project off its long-term plan and rescind all earlier motions supporting it after years of community argument.
The colourful building stocked with Maori art and works by Austrian Friedensreich Hundertwasser, who lived in the region, would have been the only gallery of its kind outside Vienna.
Councillors voted 8 to 6 against the project, with most saying they were reflecting the view of a majority of ratepayers who oppose it.
More than 100 people packed into the council chamber for the two-hour debate and crucial vote - the largest crowd seen at a council meeting.
For some it was a relief, but several people left in tears after the vote, saying Whangarei has turned down the best offer it's ever likely to get to build something unique and put the city on the tourism map.
The council will now have to pay several million dollars it accepted from the Lottery Grants Board and other donors for the project.
Whangarei councillor John Williamson said the about-face had damaged the council's credibility with major funders such as the Lotteries Commission.
John Williamson said several million dollars raised for the project will now have to be returned to the Lotteries Commission and other donors, and that is likely to make it look twice at future projects the council says it supports.