The Mediterranean island of Corsica, plagued by decades of separatist violence, rejected a French government offer of limited autonomy by a wafer-thin majority in a referendum on Sunday.
French President Jacques Chirac said that he regretted the outcome and released a statement saying the French state would continue to help the island and combat any violence.
Interior Minister Nicolas Sarkozy, who fought hard for a "Yes" vote in a part of France that was meant to be first to benefit from wider decentralization plans, said the "No" camp won with a score of 50.98 percent, versus 49.02 percent for the "Yes" side.
"The status quo stays," he said in a television appearance delayed by a count that went down to the last few thousand voting slips.
The island, which lies 160km south of France's Riviera coast, has been plagued by separatist violence since the mid-1970s and the conservative government in Paris billed the referendum as a historic chance to restore prosperity and peace.
Commentators offered various suggestions for the government failure, one of them being that voters who would have said "Yes" did not want to be in the same camp as radical nationalists.
Others attributed the tiny "No" victory -- by 2,190 votes -- to the complexity of the institutional reforms presented, fears that civil service jobs would be lost and confusion because there was no classic left-right divide on the issue.
Some 191,000 voters were asked if they wanted to scrap two administrative departments and back changes that would give an assembly of locally elected politicians more say over matters such as tax, tourism and the environment.
Sarkozy said the turnout was 60 percent.
Despite the blow, Sarkozy echoed Chirac's vow of determination to ensure peace and security, saying: "The age of impunity is over."
Jean-Claude Casanova, an expert at the Paris Institute of Political Studies, said on LCI TV, "Corsica is less of a problem than Northern Ireland and it's less of a problem than the Basque country, so it should be solvable."
Sarkozy looked far happier on Saturday when he announced how police ended a four-year manhunt with the capture in Corsican scrubland of Yvan Colonna, chief suspect in the assassination in 1998 of the top state envoy on the island, Claude Erignac.
Prime Minister Jean-Pierre Raffarin said that other regions of France would still be able to take him up on his offer of the right to seek greater powers at local level, something he hopes will make the state more efficient and reduce public spending.
Corsica, birthplace of Napoleon Bonaparte, has been plagued for decades by Mafia-style racketeering as well as the constant, violence of rival separatist groups.
The latest cycle of violence began in 1975 when Chirac was prime minister. Two policemen were shot dead when they tried to flush gunmen out of a cave.
Guerrilla groups then launched a campaign for independence that most of the island's population of about 270,000 do not support, but dare not openly oppose.
Tourists, drawn to the turquoise seas and picture-book beaches, are a major source of income on an island otherwise dependent on state aid and civil service employment.
They have been unaffected by violence usually directed at state symbols.