Local Mayor Dianne Thorley had urged the 100,000 strong community to back a plan to pump purified effluent back into dams for drinking, and warned the town's water supply could dry up within two years without drought-breaking rains.

But in a referendum Saturday, Toowoomba convincingly rejected the proposal, by approximately 62 percent to 38.

"Commonsense has prevailed," local councillor Keith Beer told AFP on Sunday. "This is a victory for the community."

The 73 million dollar scheme would have been the first of its kind in the country and one of only a handful in the world.

Toowoomba City Council had proposed treating wastewater before pumping it into the town's main resevoir and said the process would remove viruses, bacteria and hormones from the water.

But townsfolk were concerned about health risks and that the project could damage tourism and affect house prices, Beer said.

Queensland Premier Peter Beattie, who backed the proposal, called for a wider debate on water recycling to address the state's dire water shortage.

He said a similar referendum would he held in southeast Queensland in 2008.

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