The cost of a referendum would have been between $80,000 and $100,000.
Voting for the referendum were Mayor Steve Chadwick and Councillors Dave Donaldson, Mike McVicker, Tania Tapsell, Janet Wepa and Karen Hunt.
Voting against were Councillors Charles Sturt, Glenys Searancke, Rob Kent, Peter Bentley, Mark Gould, Trevor Maxwell and Merepeka Raukawa-Tait.
Mrs Raukawa-Tait had previously voted for the referendum but changed her mind, saying there was no real call from the community to debate the issue.
"We have got bigger issues to deal with anyway.
"If central Government thinks this is such a big health issue for the nation then they should take the lead on this," she said.
It was also revealed at Thursday's meeting that the Lakes District Health Board had offered the council $50,000 to help pay for the referendum.
An estimate of costs to set up fluoridation and its annual operating costs were also presented to councillors.
It was estimated to cost ratepayers between $970,000 and $1.27million to set up and between $147,000 and $190,000 a year to operate.
The decision has delighted anti-fluoride campaigners and disappointed local health professionals.
Fluoride Free New Zealand Rotorua spokesman Alan Solomon said he thanked councillors for making the right, most ethical decision for the health and well-being of the community.
"This is a win for democracy and win for freedom of choice.
"A referendum is not robust, and it does not allow for specific consultation for interested parties such as local iwi.
"Referenda are heavily skewed in favour of the older population, who are much more likely to be aware of and involved in local voting processes.
"Councillors are elected to undertake the duties of being fully informed leaders on important issues, and therefore cannot abdicate this responsibility. Whether councillors like it or not, the responsibility for fluoridation lies with the council," he said.
Lakes District Health Board chairman Deryck Shaw said he attended the meeting with several clinical leaders from the health board, Toi Te Ora Public Health and the Ministry of Health and was disappointed with the two health board members and district councillors - Charles Sturt and Merepeka Raukawa-Tait - who chose to vote against a referendum.
He said as board members they should be well aware of the body of evidence relating to the major public health initiative.
Mr Shaw said the board viewed the $50,000 contribution as "worthwhile expenditure and an investment in our population's oral health".
"The LDHB really wanted to see members of the public have the right to decide on the issue.
"There is overwhelming consensus from the range of organisations that represent doctors, public health specialists and dentists that water fluoridation is safe and effective in helping protect teeth from decay."
He said it also meant the Rotorua community would now not have an education programme around fluoride, based on scientific facts and proven information that would have allowed them to be informed and express a view on their and their children's health.
Mrs Chadwick said: "That's democracy.
"This wasn't a decision on the pros and cons of fluoride, but on the process.
"It was certainly not a decision taken lightly by councillors. The debate was spirited and fair, and it's now time for us to collectively move on to other challenges and opportunities on behalf of our communities," the mayor said.
Toi Te Ora - Public Health Service Medical Officer of Health Dr Neil de Wet said it was a real disappointment considering Rotorua children had some of the worst rates of tooth decay in the country.
"It would have been a great opportunity to have more public debate about this and for the public to have their say," Dr de Wet said.
"Water fluoridation would make a huge difference for the oral health of the Rotorua community.
"We will continue to promote water fluoridation and the providing of credible and reliable information to the public."
How they voted
For binding referendum:
Mayor Steve Chadwick
Dave Donaldson
Mike McVicker
Tania Tapsell
Janet Wepa
Karen Hunt
Against binding referendum
Charles Sturt
Glenys Searancke
Rob Kent
Peter Bentley
Mark Gould
Trevor Maxwell
Merepeka Raukawa-Tait
