"Unfortunately the additional costs are too high and the council has decided it must look at other options for resolving our serious summer water shortages," Kempthorne said.
"The decision is significant on several levels – for urban water supply, for the environment and health of the Waimea River, for rural water supply on the Waimea Plains and for our ability to service growth in Richmond, Brightwater and Mapua and their rural extensions."
Kempthorne said urgent work on an alternative to the dam to secure the urban water supply would need to begin immediately.
In the meantime, the "sleeper" no-dam rules in the Tasman Resource Management Plan would be activated, and would require significant water take cuts by both urban and rural water users on the plains during extended dry weather until another solution was developed.
The provisions were effective immediately and would apply this summer.
"Water conservation is going to be increasingly important from now on, so we'll be looking at education and information for the public on how to reduce their summer water use. We would encourage businesses and industry to think about their operations and develop water shortage plans in preparation for possible summer restrictions," he said.
The Government announced in April that while Crown Irrigation Investments Limited was being wound down, it would honour the agreement to provide up to $35m already agreed for the dam project.
Nelson City Council pledged $5m for the project and Tasman District Council had made an application to the Provincial Growth Fund.
The dam, which would have increased water flow in the Waimea River, has been dogged by controversy, not least of which involves the council seeking an easement on conservation land in Richmond State Forest Park for the creation of a reservoir.
Regional Economic Development Minister Shane Jones said the vote was a "pantomime of political mannequins" and summed up the worst aspects of local body politics.
"They are not politicians that regional New Zealand requires as we move forward in the face of climate change challenges and the need to future-proof industry by securing more stable water supplies," Jones said.
"Local Government Minister Nanaia Mahuta has promoted the idea that local governments aggregate to get more rational water outcomes in her Three Waters project. I can see why she wants to proceed with an aggregated model because it's quite horrifying to surrender these vital industry water decisions to political mannequins."
