Council officers estimated the land had a value of $590,000.
Rosalie Irwin, one of the petition organisers, said generations of residents used the park. Ms Irwin added locals were disappointed with the lack of consultation.
Elwyn Evans, another local, said the first residents knew of the sale was reading about it in the Wanganui Chronicle.
Mr Evans said the reserve was considered for sale 10 years ago but the idea was abandoned.
"We thought this would be the last we heard of such a scheme, but no."
He said if anything, council should be considering upgrading the park with public toilets, rubbish bins, tables and seats because of its popularity.
"We're asking council to rescind the decision to sell and have the whole area gazetted as a reserve to avoid the same proposal coming up again in another 10 years' time," Mr Evans said.
Councillor Sue Westwood said she applauded the petitioners for the efforts they had made, saying: "We're selling our city short if we let this land be sold."
Councillor Michael Laws said the residents had "cowered the council" and he hoped the council would give thought to improving amenities at the reserve.
The decision to overturn the earlier recommendation to sell Handley Park was unanimous and greeted with applause from a handful of residents who attended the meeting.
After the meeting Mr Evans said he was "extremely pleased" the park would stay as it is, as was everyone else who attended. He told the Chronicle he was "off to have a celebratory bottle of beer".