LOS ANGELES (Reuters) - Despite dire warnings of water shortages due to prolonged drought, the Los Angeles City Council on Wednesday rejected a plan to ration water in the nation’s second-largest city for the first time in 18 years.

The unanimous 15-0 vote against the plan marked a surprise setback for Los Angeles water managers, who like their peers in cities throughout California were directed to cut water use 20 percent this year under a drought emergency proclaimed by Governor Arnold Schwarzenegger.

But David Nahai, general manager of the Los Angeles Department of Water and Power, the nation’s biggest municipal utility, insisted that the proposal was not dead.

“The city must cut back its water use. There are no two ways about that,” Nahai told Reuters after the vote.

He said the council’s rejection stemmed not from disagreement over a need for mandatory conservation measures but from questions about how the plan would work and whether it amounted to a rate hike rather than a rationing scheme.

For procedural reasons, he said, the council had no choice but to disapprove the measure for now in order to buy more time to review the matter.

As adopted by the LADWP and endorsed by Mayor Antonio Villaraigosa, the plan calls for homes and businesses to pay a penalty rate -- nearly double normal prices -- for any water they used in excess of a reduced monthly allowance.

But Nahai insisted the measure was “revenue neutral,” designed entirely to encourage conservation.

The only other time such penalty pricing was imposed in Los Angeles was a year-long rationing system instituted in March 1991, at the height of California’s last statewide drought.

The current dry spell, now in its third year, is considered the worst to hit the state since the 1970s.

The Los Angeles rationing plan was to have taken effect by June 1 barring City Council action to block it.

Nahai said he hoped to gain council support for the measure after taking more time to explain the measure to the public.

A spokesman for the mayor, Matt Szabo, said the Metropolitan Water District of Southern California, which supplies 70 percent of the city’s water, would impose rationing on Los Angeles if the city fails to take action itself.