Government-appointed commissioners will continue to govern the Canterbury regional council until 2016.
Elections were to resume in 2013 but legislation was tabled in Parliament on Friday deferring elections for another three years.
Local Government Minister David Carter and Environment Minister Amy Adams made the announcement in Christchurch on Friday.
Commissioners were appointed to manage the council in 2010 following a critical external report on the way the council was run.
Mr Carter says the commissioners, led by Dame Margaret Bazley, have been highly effective in dealing with urgent problems such as water management.
He says they have also provided strong governance following the series of earthquakes to hit the region, and in the subsequent rebuild, and it is vital that this continues.
Mr Carter says a ministerial review will be held in 2014, in time for the 2016 local body elections.
Ms Adams says it is important for the Government that the region's freshwater work remains on track and that its freshwater resources continue to be managed effectively.
"We have of course in this region significant economic growth potential from our natural resources, but we face significant challenges.
"We consider that it is critical for New Zealand that the governance structure for Environment Canterbury remains stable, effective and efficient - particularly while the work to manage our freshwater resource continues and is completed."
Ms Adams says in order to ensure this, the council will retain the limited appeal rights on water issues.
Former council deputy chair Jo Kane says the Government's decision is motivated by the need to control the water rights in the region.
She says it has broken its promise to hold elections next year and clearly has no respect for ratepayers who have no democratically elected representation.
Democracy being 'throttled'
The Green Party says the Government is throttling regional democracy in Canterbury.
Local government spokesperson Eugenie Sage says the decision to keep the commissioners is a huge vote of no-confidence in local government if ministers are saying elected councillors can not provide stable, effective and efficient governance.
Ms Sage says the Green Party wants the legislation to go to select committee so there is an opportunity for public submissions.
Forest and Bird says the decision is a deliberate move to continue to allow more large-scale irrigation schemes in the region.
A spokesperson, Nicola Toki, says it will accelerate inappropriate agribusiness that puts rivers at risk.
Ms Toki says while the commissioners have worked hard to develop freshwater plans and policies in the region, there is no excuse to take away Cantabrians' right to appeal decisions on how their water is managed.
A Forest and Bird Conservation spokesperson, Nicola Toki, says the decision will accelerate inappropriate agribusiness that puts rivers at risk.
"No other region in the country had legislation like this which denies the people of the region the right to appeal - and there's absolutely no reason why we couldn't have that now."