Edinburgh's controversial tram line will now only go between Edinburgh Airport and Haymarket after councillors threw out plans to build the line to St Andrew Square.
The vote means Edinburgh City Council will now not need to seek a loan of £231m for the project.
The Lib Dems lost the vote after their coalition partner, the SNP, abstained.
Labour's move to have the line stop at Haymarket was supported by the Tories and was passed with 25 votes.
Edinburgh Labour Leader Andrew Burns said: "The decision to complete the tram project to Haymarket is clearly the option with least risk and which leaves the city with an asset.
"It was the only option before council today which provided a viable way forward, and I am glad that the council supported that option."
Following the meeting Edinburgh Council leader Jenny Dawe, said: "It's heartbreaking that the decision to progress to St Andrew Square has fallen, threatening this city's future financial vibrancy.
"I am really angry that Labour and Tory councillors have rejected the professional advice of our chief executive and officers and some of the most highly regarded legal, technical, financial and engineering experts in the country.
"This was the option that was supported by the business community within the city and would have seen a profit realised."
Gordon Mackenzie, Edinburgh City Council's transport convener, said Princes Street would still have to be closed to have the tram lines redone on health and safety grounds despite the trams not travelling that far.
It follows earlier news that bosses overseeing the project had admitted they had overestimated the cost of cancelling the scheme.
A report published by the local authority warned repayments of a loan needed to build the line to St Andrew Square would cost £15.4m a year over the next 30 years.
Added to the original £545m budget for the project, it would take the full cost through the £1bn barrier.
In June, the cost of cancellation was said to be £750m and last Friday when the council's latest tram report was published, that figure had been cut to £670m.
It has now been reduced by another £19m, taking the cost of cancellation to £651m.
The scheme has so far suffered from a contractual dispute, leaving it over budget and behind schedule.