"Local authority challenges by way of review will not have a say in where a parolee may live but given their public interest I consider they should be entitled to challenge the lawfulness of a [Parole] Board decision."
Justice Young said he thought most local authorities would object to a recidivist sex offender such as Wilson in their territory.
But under the law, such offenders, who are entitled to be released from prison, must live somewhere, he said.
"Thus, Parliament has given the Parole Board the task of deciding on parole and release conditions without the input of such public bodies but with a carefully prescribed set of guiding principles and conditions."
The council had applied for a judicial review on the grounds that the Parole Board considered the rights of Wilson's victims over the rights of the Wanganui community, but this was rejected by Justice Young.
"The evidence establishes both [victim protection and community safety] were taken into account with primacy given to community safety, including the safety of victims, by the [Parole] Board."
Wanganui Mayor Annette Main said although she was disappointed in Justice Young's rejection of the council's application, his decision was confirmation that the council did the right thing in challenging the Parole Board's decision.
"Our valid role has been acknowledged, in challenging the lawfulness of decisions such as the one made by the Corrections Department and the Parole Board, in regard to Stewart Murray Wilson's release, when the facts and decision-making process were made available to us."
Ms Main said the council would seek legal advice on whether there were grounds to appeal against Justice Young's dismissal of the case.
"A decision on the likelihood of an appeal proceeding has yet to be made by the council."
Councillors will meet today to form a plan to lobby the government over retrospective legislation.
"Legislation changes are now required urgently to ensure that other communities across New Zealand are not placed in the situation we were," Ms Main said.
Wilson arrived in Wanganui last week, and is living in a self-care unit on the grounds of Whanganui Prison.