Such decisions were "never easy", he said, thanking the students who provided feedback to the university.
"I would also like to emphasise that the decision to raise student fees is to ensure we provide the best possible environment and one in which our students thrive. This includes a quality educational experience, modern and fit-for-purpose facilities and a comprehensive network of student support services."
However, Sir Neville said Victoria's fees were already lower than other universities, in some subjects.
"It is already more than $300 less expensive to study humanities and social sciences at undergraduate level at Victoria than it is at a number of other institutions," he said.
The university council also voted to increase the Student Services Levy in 2017 by approximately 1.75 per cent. The levy goes towards funding student services such as careers guidance, pastoral care, financial support and advice, and sport, recreation and cultural activities.
The university has already voted to increase tuition fees for international students by between 2 per cent and 7 per cent for next year, citing the strong New Zealand dollar and the affordable cost of living in Wellington.
International students pay full tuition fees while domestic student fees are subsidised by a Government grant.
Students opposed to increase
The Victoria University of Wellington Students' Association argued against the fees top-up, saying it could deter those from lower socio-economic backgrounds from applying to study at the institution.
"The Tertiary Education Strategy states as a priority the need to boost achievement of Maori and Pasifika. That is very hard to come by when they are increasingly price-sensitive and debt-averse, and therefore dissuaded from attending university in the first place due to high tuition fees," association president Jonathan Gee told the council at today's meeting.
"In a time when we are trying to reach the 'missing 1000' Maori students, a fee increase does not seem wise at all."
The soaring cost of tertiary study and anxiety about debt was a major cause of mental health problems in New Zealand students, Gee said.
Gee also argued that students were concerned about value for money - and that an increase in teaching quality was needed if fees were to rise.
"From the students I talk to, while they generally agree that teaching quality at Vic is very good, they also agree that there a very visible pockets of not-so-good teaching, which colours their overall perception of teaching quality at Vic," he told the council.
He added: "Students are looking for value for money, and clear increases in quality when their student debt increases."
If they were to pay more for university, students wanted a larger variety of papers on offer, and more time with lecturers and tutors, he said.
"Victoria has the highest number of students per academic staff member compared to every other New Zealand university. We need to talk about how students can have more positive and valuable interactions with our community of world-class scholars."
Gee also called on the university to be more transparent about how it sets fees.
"We need to start a genuine conversation with students about how their fees are set and where they'd like them to go. It's about valuing students as partners, and being open to changing what we have always done. Until that happens, I cannot support an increase in fees."
Cost breakdown
Currently a fulltime under-graduate paper, worth 120 points, ranges from $5256 - $7692, depending on the subject. After the 2 per cent increase, the cost of studying the same courses next year will set students back between $5361 and $7845.
The student services levy will rise by $12.50 to $730.50 for fulltime study in 2017, from $718 in 2016.
The fee increase approved today will apply to all students studying at Victoria in 2017, a university spokeswoman confirmed.
Earlier this month, the University of Otago announced it would increase its tuition fees by 2 per cent from the 2017 academic year.
The University of Canterbury has also increased its fees by 2 per cent for the 2017 year.
Last year, students at the University of Auckland staged a protest over a decision to increase fees by 3 per cent.
