There is to be a review of local government boundaries after Exeter City Council's bid for unitary status was put on hold.
Exeter City Council said it would still press on with its ambition
The Local Government Minister said the make-up of Devon meant Exeter's unitary bid was not financially viable.
Instead, he has asked the Electoral Commission's Boundary Committee to look at alternatives to Devon's existing structure of authorities.
The committee has 12 months to report back with its recommendations.
Exeter City Council said unitary status would avoid the duplication that exists through sharing power with the county council. Its bid has all-party backing on the city council.
Council leader Peter Edwards said they were urgently seeking a meeting with ministers to understand the reasoning behind the decision.
He said: "We put forward a strong and compelling case for unitary government in Exeter which will deliver better services, value for money and local accountability.
"We regret the delay to a unitary authority for Exeter, caused by the government's wish that the rest of the county should also be made up of unitary authorities.
"We are, however, confident that we will achieve our objective of a unitary Exeter."
But Devon County Council leader Brian Greenslade said the council was relieved by the government decision, as Exeter City Council's proposal for a unitary authority was "deeply flawed and could not have worked within the narrow confines of the city boundaries".
The county council said it welcomed the opportunity for an independent review.
It said it was, "looking forward to working with the Boundary Committee and stakeholders to ensure that any future local government structure proposed for Devon is well thought through, financially viable and does not pose a threat to services or taxpayers".