The government has told local councils it will work "constructively" with them on laws which will restrict their activities.
Members of Local Government New Zealand - the umbrella body for all the country's councils - have voted unanimously to oppose a bill which will limit them to "core services" like roading, rubbish collection and libraries.
The government feels they have been branching out into commercial ventures and wants to keep rates down.
Local Government NZ is holding its conference in Queenstown and Prime Minister John Key on Monday said councils should tighten their belts just like central government was.
"We all have to face up to making difficult choices," he said.
Councils have consistently opposed the bill, which parliament is considering, and Local Government Minister David Carter told them he wanted to work constructively with them on the legislation, Radio New Zealand reported.
"We don't get legislation around local government matters before parliament very often, let's work together and make sure that what we do finally push through is something that's enduring for the sector," he said.The bill is being considered by a select committee and Mr Carter says anyone with an interest in it should make a submission.
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