Plastic bottles were ceremoniously removed from shelves in the sleepy Australian town of Bundanoon at the weekend as a ban on commercially-bottled water – believed to be a world first – came into force.

The ban, which is supported by local shopkeepers, means bottled water can no longer be bought in the town in the Southern Highlands, two hours from Sydney. Instead, reusable bottles have gone on sale, which can be refilled for free at new drinking fountains.

Locals marched through the town on Saturday, led by a lone piper, to celebrate the start of the ban. John Dee, a campaign spokesman, said: "While our politicians grapple with the enormity of dealing with climate change, what Bundanoon shows is that at the very local level we can sometimes do things to bring about real and measurable change."

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The ban was triggered by a Sydney drinks company's plan to build a water extraction plant in the town. Huw Kingston, a cafe owner, said townsfolk were horrified by "the idea of them taking water here, trucking it to Sydney and bringing it back in bottles to be sold in shops at 300 times the tap price".

Bottled water is widely viewed as an environmental menace, because of the energy consumed in producing and transporting it, and because most bottles end up in landfill sites. A New South Wales government study found the industry was responsible for releasing 60,000 tonnes of greenhouse gases in 2006.

In recent years, dozens of local authorities in Britain and the US have stopped spending public money on bottled water. But Bundanoon, population 2,000, is believed to be the first community to ban it completely.

Shelf space previously reserved for bottled water in the town's supermarket, off-licence, cafes and newsagent is now occupied by the reusable bottles. Filtered water fountains have been set up in the main street and at the local school; bottles can also be refilled in shops, for a small fee.

Mr Dee said: "We're saying to people, you can save money and save the environment at the same time. The alternative doesn't have a sexy brand, doesn't have pictures of mountain streams on the front of it. It comes out of your tap."

Only two people voted against the ban. One was concerned it would lead to more sugary drinks being consumed. The other was Geoff Parker, director of the Australasian Bottled Water Institute.