Squash had been keen to move because the two existing courts weren't enough for a growing population and the club had previously been told it couldn't enlarge the pavilion.
However, at last week's meeting councillors decided by a slim majority to rebuild the pavilion rather than demolish it. The council also said the club could build two further squash courts on the Domain site, though that would be subject to funding, consents and any required consultation.
The squash club is still considering the council's decision and isn't ready to comment, but Tim O'Leary, president of the Kerikeri Makos, said he was pleased that rugby league - and the rest of the community - would still be able to use a building in the middle of town.
Peter Poharama, who ran a youth drop-in centre at the pavilion every Friday evening, said it was the ideal location because hundreds of young people walked through the Domain every day after school.
He was ready to start again as soon as the building was repaired and would contact sponsors to replace the gear that had been lost in the fire and subsequent thefts.
Mayor John Carter said there was still a lot of work to be done but the decision provided a clear path forward.
"The Bay of Islands-Whangaroa Community Board, particularly Kerikeri-based members, worked hard to find a solution and get the wheels turning on this issue. Crs Ann Court and Dave Hookway have also been heavily involved and I want to thank them both for their efforts."
The council is preparing a Reserve Management Plan for the Kerikeri Domain and compiling community feedback received in an online survey last month. The feedback will form the basis of a draft plan which will go out for consultation in November.