Donna Poka, who represented the island's tangata whenua, Nga Hapu o te Moutere o Matakana, said her people were overjoyed with the decision.
"We are just elated," Ms Poka said.
"We are just so happy with the outcome, especially in this climate and especially with what we are facing with Rena. This is a victory and it feels a bit like a break from the seige we are in. But we don't want to sound too cocky."
Blakely Pacific is a US-owned company which has investments in several New Zealand forestry properties. It has the option of appealing the Judge's decision.
Ms Poka said the battle felt like one akin to David and Goliath.
There were concerns that the activity that would come from the development would harmfully impact on the environment and iwi ancestral roots.
"It would affect our relationship with our ancestors lines, our urupa [cemetery], and where we go and collect our kaimoana. We are tangata whenua. We have been here for hundreds of years. We are not just going to roll over," Ms Poka said.
In his decision, Judge Smith said the development would be of little benefit for the Maori who already live on the island or general public.
"We are concerned that this important piece of land, having significant natural features and a significant cultural component should not be compromised by successive applications for consent."
As part of the proposal iwi were offered the chance to have someone appointed as a community liaison working in with development plans.
Judge Smith said the plans needed to recognise and provide for the ancestral roots of Maori on the island, which included important Pa sites.
"We do not consider that a community liaison group with no funding and power achieves any more than informing the Maori of the decisions of the owners."
But Judge Smith noted that if current plans already under way for the whole island were not substantially concluded within three years, it could be possible the applicant could reapply the subdivision plan to the court.
Blakely Pacific's New Zealand-based managing director, Phil Taylor, said the company was disappointed.
"We put a lot of time and effort in to it and we believe we had a strong proposal," Mr Taylor said.
In regards to an appeal, he said: "We are reviewing our options. We are very well aware of it and we will be taking a very considered approach," Mr Taylor said.