Plans to build more than 1,000 homes on green belt land in Nottinghamshire were thrown out at a public meeting on Thursday evening.
The site is on the southern edge of Nottingham
More than 300 people attended the meeting at Rushcliffe Arena to protest against the proposed development.
With a majority of just two votes, councillors decided Sharp Hill Woods would not be built on.
But Rushcliffe Borough Council leader Neil Clarke said this was just the start of a battle to save the land.
He said: "This is not the end of the story for Sharp Hill. The government will be putting a lot more pressure on us to have that land developed and we will have to try and find a way of listening to the people and resisting it.
"But I fear it will be more difficult to resist central government than the local planning authority."
He explained that because housing plans had been rejected, the council was left without a local plan, giving free rein to central government to impose planning decisions.
Cllr Sam Boote, chief whip from Rushcliffe's Liberal Democrats, denied claims that Rushcliffe no longer had a local plan.
"We need a few weeks to have more meetings to submit a revised version of the local plan, following recommendations from the government inspector and we will not be left wide open to the government imposing their local plan," he said.
Cllr Clarke said the council would now look again at sites which include Cotgrave, Ruddington, Keyworth, Clifton, Tollerton and land on the other side of the Melton Road.
Chris Evans, leader of Rushcliffe's Liberal Democrats, said he knew it was going to be close.
"When the votes came through, it was like winning the World Cup for me, my heart was going through my mouth," he said.
The council has until 26 July to come up with alternative locations for the housing.