The initiative, dubbed 'Live and vote here', was designed to allow foreign nationals who have lived in Switzerland for more than ten years – three years of which must have been in Vaud – the right to vote in cantonal elections.
If it had passed Vaud would have become the first canton to allow foreign residents to have a say in local politics.
Over 71% of Vaud's foreign residents come from the EU-27, mostly from Portugal, France, Italy and Spain. Another 12% come from other European countries, notably Serbia, Montenegro and Bosnia. These percentages roughly mirror the pattern of Swiss immigration overall, whereby 87% of foreign residents are of European origin, according to official statistics from Vaud canton authorities.
"It's certainly a very clear result," a disappointed Raphaël Mahaim, a Green Party politician and co-president of the initiative, told the Swiss press.
"For the majority of Vaud residents there is still an important link between nationality and local political rights."
Vaud's centre-left parties supported the initiative, which was heavily criticised by centre-right parties.
Fabrice Moscheni, president of the Vaud branch of the centre-right People's Party, welcomed Sunday's result and said the decision was a "sensible" one.
"Vaud voters have recognised that to participate in cantonal political life you need to be Swiss and that is something non-negotiable," he reportedly said.
Opponents of the initiative argue that foreigners wanting to take part in civic activities should become naturalised citizens.
Philippe Leuba, head of the Vaud cantonal interior office, said the vote should not be interpreted as a rejection of foreigners.
"Two out of three Vaud residents are not ready to separate political rights on the cantonal level from obtaining Swiss nationality," Leuba said.
Since 2003, around 85,000 people fulfilling the Vaud canton's residence requirements have been able to vote on issues at communal level and to seek election to communal positions.
Foeigners living in the cantons of Geneva, Appenzell Ausserrhoden, Freiburg, Graubünden, Vaud, Jura, Basel-Stadt and Neuenburg may vote in local elections at communal level if they are 18 years old and have been legally registered in one of those cantons for a minimum of eight years.
No foreigner has the right to stand for election in Switzerland.