As chairwoman of the meeting councillor Merepeka Raukawa-Tait had the casting vote - voting for the referendum.
However, the decision is very likely to be challenged at the next council meeting on Thursday, July 31.
Strategy and Partnerships group manager Jean-Paul Gaston said staff preferred the use of a binding public referendum saying it gave the public a real say on the issue and it would be "the most likely option to survive a potential legal challenge".
Mr Gaston said a binding referendum would also allow councillors to express their personal views on fluoridation without compromising the consultation process.
Councillors had to decide if any referendum undertaken should be binding or non-binding, or if consultation should be undertaken under the umbrella of the Local Government Act's special consultative procedure by producing a "statement of proposal" for community discussion.
The cost of a referendum would be between $80,000 and $100,000, while the cost of alternative public consultation would be between $25,000 and $50,000.
Seventeen members of the public attended the meeting, about 16 more than usual at a council committee meeting.
Before the issue was debated councillors Glenys Searancke and Charles Sturt tried to have the issue dismissed with no further action taken, but their motion was defeated.
Mrs Searancke said councillors were elected by the people to make decisions of this sort and there was no money in the budget for a referendum.
Mr Sturt said the community would be "aghast" with council spending money on a referendum, considering about 60 council staff had recently lost their jobs.
Councillor Rob Kent said it was the duty of the council to do its best to protect the public from harm. He said the burden of proof that fluoride was safe "beyond any reasonable doubt" should fall back on the Lakes District Health Board and the Ministry of Health - the organisations that were lobbying for fluoride.
Deputy Mayor Dave Donaldson said he did not yet have an opinion on the subject saying the only safe way to move forward was to let the community decide. Councillor Peter Bentley suggested that if a referendum were to be held it should be at the next council election in 2016 to save on costs.
Meanwhile, anti-fluoride lobby group Fluoride Free New Zealand has organised a public meeting for concerned Rotorua residents.
Talks will be held at the Sudima Hotel, Eruera St, on Saturday July 26 from 4pm to 6pm.