The working party of nine councils that was looking at an online voting trial, decided without central government's support, the cost would be unattainable for most of the councils due to not factoring it into their 10-year plans.
It will continue to work to deliver online voting for the 2022 local body elections.
Councillor Angela O'Leary said it was disappointing to be so close, but so far away at the same time.
"I'm really frustrated by this, and central government should be driving this project and funding this project," Ms O'Leary said.
"I was the first one to have a blog, and some of my colleagues thought the sky was going to fall. I was the first one to suggest webcams for the council meetings, and some of them thought the sky was going to fall again, and I'm feeling a bit the same about this.
"The idea is met with so much fear of the unknown."
Councillor Mark Bunting said it was core to democracy to stay in front of the voters.
"We are dragging the chain," Mr Bunting said.
"Four other countries are doing this quite well in their own voting system.
"At risk of criticising the Government, New Zealand Post is dying so move on, 87 per cent of people are doing things from their mobile phones these days.
"I would urge in the next term we get on to this a bit earlier."
Councillor Garry Mallett said online voting will come when it is ready, but right now it is too expensive.
"There is a heck of a lot that can go wrong with online voting, and if it goes wrong then your whole election is mucked up," Mr Mallett said.
"I think we were foolish to rush in with this."
Although online voting has been legal in New Zealand since 2001, current legislation requires the government to make regulations that set out the way an online voting system would work and the expected standards.
Working Party spokeswoman Marguerite Delbet said: "The working party is hugely disappointed that the trial won't proceed at next year's local body elections ...
"With rising postal costs, sections of our communities currently unable to vote privately and growing disengagement with elections generally, there is simply too much at stake to give up now."