Mayor Adrienne Staples said the decision-making process that resulted in the outcome had been "very fair".
A council hearings panel, chaired by former Kapiti mayor Jenny Rowan, heard 34 submissions presented by residents, before the panel went into private deliberations to make the final decision. "We've had a independent chair who is known for her ability to let everybody have a say, which she did," said Mrs Staples, "and I guess they didn't tell us anything we weren't expecting to hear."
Mrs Staples said the council believed there was still strong support for a Waihinga Centre "of some description" and Town Hall upgrade.
"So we've rejected the targeted rate and we want to meet with the steering group as soon as we can to discuss a way forward, and that's really it in a nutshell," she said.
"The community's rejected that so we'll go back and look at the project as a whole and see how we can make it work."
Martinborough Ratepayers Action Group chairman Graham Higginson said the group was "delighted that council has seen sense" and rejected the proposal. "We believe that this project needs to go back for more community consultation and that we get larger community representation to decide what we actually need in this town."
He said the project had created a "division" within the Martinborough community.
"It's about democracy and finding a middle path that everybody is happy with."
Mr Higginson said the submission process had been helpful. "Now we think that it needs to go back to the entire community, not just to the steering group.
"What we really want is for an affordable option - affordable and realistic - something that the whole community engages in," he said. "Division in a town as small as this is not good."
Acting chairwoman of Featherston Ratepayers and Residents Association Sue Fox said the group "welcomed the decision" and would like to see district-wide engagement for the project.
"The whole targeted rates issue has brought together ratepayers from different wards. We realised that in fact we were all on the same side and we all want the same thing - a well-reasoned, well-managed, cost effective project, with identified and well understood benefit for the whole of the South Wairarapa district."