With the backing of municipal officials, electricity producer Repower wanted to build the plant in La Punt Chamues-ch.
However in a vote on Monday night, citizens voted 74 to 64 against the project, the SDA news agency reported on Tuesday.
They cast ballots after a long debate involving proponents and detractors, including environmental groups and the regional association for the protection of birds.
The hydro plant was earmarked for the Val Chamura, a small valley connecting with the Engadine.
But it turns out the location is home to a pair of bearded vultures, who count among the most prolific breeders of their species in the Alps.
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Environmentalists argued that the plant would have threatened the birds’ habitat, as well as the natural environment and countryside of the valley.