The failed bid for unitary status in Oxford will put a strain on Town Hall-County Hall relations for years to come, a senior councillor has claimed.

Oxford's failure yesterday to make it on to a shortlist of unitary authorities - replacing the current two-tier system of county and city councils splitting services between them - was described as a "bad day for democracy".

But the divisions separating the two authorities would continue, according to Green councillor Craig Simmons, who has a seat on both authorities.

The city's bid to take control of all council services was unique because it would have involved the creation of three new councils: one in the city, the merger of Cherwell and West Oxfordshire in the north and the amalgamation of Vale and South Oxfordshire in the south.

The set-up costs would have been £27m, according to the city.

However, the county council said the costs would be double.

Now the city council has been told to forge an "enhanced" working relationship with Oxfordshire County Council.

Mr Simmons said: "I hope people can be professional and act in the best interests of members of the public, but I suspect that is being optimistic.

"There were a lot of cheap shots from the county and that could not have done its credibility any good. Oxford has been denied its autonomy - it will strain relations more than they currently are."

City council top brass were left "speechless" after Oxford was omitted from a shortlist of 16 councils, which included the three with which its bid was prepared - Exeter, Norwich and Ipswich.

It means County Hall will continue to formulate policies for schools, highways and social services - departments over which the city has no say or control.

City council leader John Goddard said: "I think it's a bad decision and a bad day for democracy because the system we were proposing would have brought councils nearer to the people."

But he added: "There is a determination to make a better, more constructive relationship than there has been in the past."

County council leader Keith Mitchell said: "I am determined this unitary bidding process will have no lasting negative effect on our relationship with Oxford City Council."

The Government made its decision partly on the amount of public support and cost.

Oxford East MP Andrew Smith said: "This is a setback, but shouldn't be allowed to stop Oxford's progress to unitary status - especially as the strength of the city's case is widely recognised.

"In the meantime, the councils both serving local people must overcome their differences and work together for the public good."

City council chief executive Brian Dinsdale has demanded a detailed explanation of why the city council failed.

He said: "I am very disappointed. It's a missed opportunity for the city."

City labour group leader Bob Price said: "The bid was a highly imaginative approach, offering real improvements in local democracy."