Nearly two-thirds of voters (63.7 percent) said no to the plan in a referendum on Sunday.
Luzian Franzini, co-president of the Young Greens party which had put forward the initiative, expressed his disappointment at the scale of the defeat.
But in comments made to Swiss daily Tages Anzeiger, Franzini rejected claims the party had scored an own goal by paving the way for more relaxed planning laws.
He said opponents of the Young Greens’ plan had also recognized urban sprawl was a problem.
He also argued Sunday’s result showed Swiss voters were confident an already existing law – the Spatial Planning Act backed by voters in a referendum in 2013 – would stop urban sprawl.
However, Franzini said the Young Greens did not believe this was the case as the 2013 law allows for the creation of new building zones.
Meanwhile, Swiss Environment Minister Simonetta Sommaruga welcomed Sunday's result.
The minister with the Socialists (SP) told Swiss news agency SDA that protection of the countryside was “an important issue” for people in Switzerland but that the country already had “a tough law” `[the Spatial Planning Act of 2013] which now had to be implemented.
Sommaruga has been criticized for her opposition to the initiative, with the Greens arguing she has divided Switzerland’s political left.
But the environment minister said the Young Greens initiative did not offer a solution to the problem of urban sprawl whereas the existing 2013 law did provide an answer.
In the lead-up to the vote, the Swiss government argued the initiative was too inflexible.
It said a freeze on the amount of land zoned for building failed to meet the needs of the Swiss population and the economy and could make Switzerland less competitive.
The urban sprawl initiative aimed to freeze the entire area of building zones in Switzerland at their current level.
This would have meant a new building zone could only be approved if an area elsewhere of at least the same size and same agricultural potential were to be declassified as a building zone.