Fewer than 400 votes separated opponents and supporters of the TransRun project, which would have provided a new, faster train route between the canton’s two largest cities, Neuchâtel and La Chaux-de-Fonds.
The project, involving a 16.7-kilometre rail line, most of it through tunnels, was opposed by 50.3 percent of the electorate, while 49.7 percent were in favour.
The cantonal government and a majority of MPs approved TransRun as “indispensable” for the future of Neuchâtel’s economy.
But campaigners against the scheme highlighted its high cost and the debt involved in financing the construction.
One poster for the “no” campaign suggested a billion francs would disappear down a “black hole”.
The issue divided the canton on a regional basis, with voters in the watch-making centres of La Chaux-de-Fonds and Le Locle approving TransRun by 70 percent and 60 percent respectively.
But elsewhere in the canton, including Neuchâtel, a majority of voters were opposed.
Despite the defeat, Philippe Gnaegi, head of the cantonal government, said the cabinet would “continue to work to reinforce cantonal cohesion”.
The cabinet minister in charge of the transport project, Claude Nicati, said Neuchâtel’s rail network would be “cleaned up but not transformed”.
The Swiss Federal Railways announced studies would begin in the next few days to look at ways of renewing the existing line between Neuchâtel and La Chaux-de-Fonds.