Cr Guy said the stallholders had a significant emotional and financial commitment to the Cargo Shed.
Deputy Mayor David Stewart said the situation where the council had to choose between Creative Tauranga and the stallholders was "unfortunate, to say the least".
"If we go down this road, does it mean we don't have faith in Creative Tauranga?" he asked.
Cr Stewart questioned where it would all end if the council backed the stallholder splinter group at the expense of the council-funded umbrella organisation. His attempt last month to mediate a solution had resulted in a letter that was "quite blunt", the stallholders had taken umbrage and the whole thing blew apart.
Mayor Stuart Crosby said the issue had been blown out of proportion, in terms of the Cargo Shed artists being a small part of Tauranga's total arts sector. He told the Bay of Plenty Times afterwards there was no doubt Creative Tauranga could have handled it better and had ended up paying the penalty.
The gulf between the trust and the stallholders was summed up by trust chairman Grant Sowter's response to a question about whether there had been a vacuum between the two organisations. "I received the full correspondence file and everything that could have been done was done."
However, the stallholders insisted yesterday they had not been consulted on the changes. Stallholders spokeswoman Kathy Sass said the decision was a "huge relief".