Christchurch City Council thinks the issue of sex workers in a residential area can be "addressed in other ways", rather than imposing a bylaw.
The idea of creating a bylaw, which would have regulated street-based sex work, was dismissed by council on Thursday.
Instead the council will set up a community working group, working with the New Zealand Prostitutes' Collective, to find ways to encourage sex workers not to work in residential areas.
Manchester Street residents, north of Bealey Avenue, have complained about street-based sex workers in the area since the 2011 earthquake.
Sex workers used to work south of Bealey Avenue, but were forced out of the area when the city was cordoned after the 2011 earthquake.
They are reluctant to move back there because of roadworks.
The council's head of strategic policy, Helen Beaumont, realises residents will be upset over council's decision.
It had become clear during investigations that a bylaw created under the local government act would be very difficult to effectively enforce, she said.
The police were initially willing to assist council by enforcing a new bylaw and regulating street-based sex work, but had withdrawn their support.
"We think the issues can be addressed in other ways," Ms Beaumont said.
"We've been looking closely at what has worked in Auckland and are working with the New Zealand Prostitutes' Collective, the police and social agencies on ways we can encourage the street-based sex workers to relocate."