The four-year-old event is watched by some 10,000 spectators and attracts an avid international audience, thanks to coverage by the BBC and other news organisations.
The surfing beefcake is such a big draw that the local McDonalds last year ran out of hamburgers.
Not only did participants risk shark attack or lightning strike, the council said, but traffic chaos, general drunkenness and smashed glass littering the sand were too dangerous.
The chairman of the council's safety committee, Peter Moscatt, said the event needed better planning.
"We had a terrible problem last time with the car enthusiasts and the crowd," he said.
And police said it was sometimes difficult to arrest a naked surfer in such a large crowd. Nudity is illegal on the beach.
Elvis is everywhere
But festival director Megan Donnolley said there had never been any problems or arrests.
"It's a conservative backlash. It's got nothing to do with safety issues or traffic.
"I am very disappointed. If 10,000 people come to a free event, there are a lot more people for it than against it."
She said the council had given organisers no opportunity to present plans to control crowds and traffic.
Festival organisers have begun the search for a new venue.
A juggler and Elvis were among the 44-strong field brandishing boards at last year's competition, vying for the top prize of a holiday at an Australian nudist resort.