Councillors have voted against flying the rainbow flag from Causeway Coast and Glens Borough Council’s headquarters during this year’s Foyle Pride festival.
The Sinn Féin motion was defeated by 17 votes to 15 at a meeting of the council on Tuesday.
It is the latest attempt to have the motion passed at council.
In June last year the proposal sparked a walkout by DUP councillors while it was also blocked in August 2019.
Cara McShane, the Sinn Féin leader on council said Wednesday’s vote “sent out a very clear message once again that Causeway Coast and Glens is a cold house for the LGBT community.”
“It effectively slammed the door on equality and inclusion. That is unfortunate, it is an issue we all could get around, in the larger scheme of things it was just a small gesture,” she added.
The motion was backed by Sinn Féin, the SDLP and Alliance and rejected by the DUP and PUP.
PUP councillor Russell Watton told the BBC passing the motion would have been “opening a can of worms.”
“If they get putting up an LGBT flag, then we will be putting up flags for Polish independence or homelessness. When do they stop?” he said.
The UUP, which allows its representatives to vote with their conscience, was split.
The DUP walkout last June meant there were not enough councillors for the vote to be held while in August, when the motion was passed, the DUP used a procedural mechanism to call back the decision.
The motion returned to council after the local authority sought legal advice.
Meanwhile, around 50 people attended at protest at the council building prior to Wednesday’s meeting.
The protestors are calling for an independent financial audit of the council’s finances.
Last month the council announced it was £68.7m in debt.