The government's electoral roadmap would have given all residents the right to vote for the chief executive for the first time in 2017, but only able to choose from candidates vetted by a Beijing loyalist committee.
In an unprecedented rebuke, the proposal was voted down by 28 votes to eight, with the majority of pro-government lawmakers walking out of the legislative chamber without casting their ballots as defeat loomed.
He added that China wanted to "press ahead with the democratic development of Hong Kong" in the interests of stability and prosperity in the former British colony.
But analysts agreed that Beijing was unlikely to alter its stance on the vetting of candidates, and authorities in Hong Kong have said the political reform debate is now off the table for 2017.
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That means the next chief executive will be chosen by a 1,200-strong pro-Beijing committee, as was the unpopular current leader, Leung Chun-ying.
Leung added it was time for the community to "move on" and focus on other issues.
"Political reform will effectively grind to a halt," said Shi Yinhong, international relations professor at Beijing's Renmin University.
"There is unlikely to be a new (reform) proposal from China's government," he said.
Pro-democracy lawmakers did not cast their defeat of the vote as a victory, with some saying that it was just the beginning of a long battle.