Danish voters rejected a government proposal to replace the nation's current opt-out of the EU's Justice and Home Affairs rules with an opt-in model in a referendum.
With all votes counted, 53.1 percent Danish voters on Thursday said "no" to the proposal while 46.9 percent were in favour. The turnout rate was 72 percent, Xinhua reported.
"I have full respect for the Dane's decision," Denmark's Prime Minister Lars Loekke Rasmussen said.
With a "no", Denmark risks being excluded from the EU's law enforcement agency Europol as the organisation is set to become a supranational agency controlled by EU justice and home affairs ministers following the 2009 Lisbon Treaty.
Data shows that the Danish police access Europol's criminal database Europol Information System (EIS) ten times more than other EU member states.
The "yes" camp, led by Rasmussen of the ruling Liberal party as well as the opposition Social Democrats party, believe that "it will be a serious problem for the safety and security of Danes if Denmark is required to leave Europol."
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The prime minister also warned in his last minute campaigning that "a no vote means drifting away from cooperation, and that creates uncertainty."
In fact, the referendum was largely meant to ensure Denmark's continued participation in Europol and calls for the adoption of 22 Justice and Home Affairs legislative acts.
However, the "no" camp including the far-left Red-Green Alliance, the Liberal Alliance as well as the Eurosceptic Danish People's Party wants Denmark to retain its legal exemption despite its support for Danish participation in Europol.
The country risks losing control over its immigration policy, given the current refugee crisis facing the EU, it argued.
As such, Rasmussen said he will on Monday start negotiations with all the parties for getting a parallel agreement on Europol in place.
"It is my experience that both 'yes' and 'no' parties have agreed that it will be a disaster for Denmark if we slip out of Europol," said the prime minister.
"It is an obvious conclusion that one should try to negotiate a solution forward so that Denmark can remain in Europol."
Business organisations here also urged politicians to stand together in order to ensure the best possible conditions for Denmark.
"We obviously hope that the government will contribute to negotiate some really good deals home for 14 of the 22 acts that have a direct impact on business," said Jens Klarskov, CEO of Danish Chamber of Commerce.
It was echoed by the Confederation of Danish Industry's CEO Karsten Dybvad, who said: "we have a clear expectation that politicians are now working together to get the best possible conditions negotiated for Denmark."
It is Denmark's second referendum regarding its four EU opt-outs, namely joint defence, justice and home affairs, European citizenship, and the adoption of the euro, obtained from the 1992 Maastricht Treaty.
Denmark last held a referendum on its relationship with the EU in 2000, when voters rejected a proposal to replace the Danish krone with the euro.