The Inner West Council has voted to move festivities usually held on Australia Day and encourage constituents to attend the Aboriginal Yabun festival.
Residents in Sydney's inner west are being encouraged to go to an Aboriginal festival on 26 January, after the council voted to scrap its Australia Day celebrations.
Inner West Council will no longer hold the Marrickville Community Festival, fireworks or Citizen of the Year awards on Australia Day.
The move was endorsed by the majority of the councillors on Tuesday night.
Mayor Darcy Byrne acknowledged that some residents may be disappointed by the controversial decision, but assured them the events usually scheduled on Australia Day would go ahead on different dates.
"There's nothing to be lost here but there is a better and more sombre, more respectful way to mark the day in the inner west," Cr Byrne told SBS News.
"People across Australia are grappling with how that date can be commemorated in a way that includes Aboriginal people and this is a small step forward."
The federal government has cracked down on councils campaigning to change the date of Australia Day celebrations, threatening to strip them of their right to conduct citizenship ceremonies all year round if they do not hold one on 26 January.
Inner West Council's mayor said he was comfortable with holding a citizenship ceremony on 26 January but would increase Indigenous involvement in the event.
He described Home Affairs Minister Peter Dutton's threats as "mean spirited".
"That would be a disaster for the inner west of Sydney because we are the birthplace of Australian multiculturalism. There have been waves and waves of migrants that have landed here in the inner west and have gone onto to contribute magnificently to society," Cr Byrne said.
He also said it was unnecessary to implement a dress code as required by the Federal Government to prevent people wearing shorts and thongs, saying attendees were "impeccably dressed".
"If we were going to ban anything it might be the silly baseball caps the prime minister is so fond of, but even that is not necessary."
He encouraged residents to instead spend the day at the Yabun Festival, held at nearby Victoria Park, which celebrates the survival of Indigenous culture.
"It's a great learning opportunity to discover more about the culture and history of the world's oldest continuous human civilisation," he said.
Darebin, Yarra and Moreland councils in Melbourne have already moved to stop marking 26 January as Australia Day. Fremantle in Western Australia has also done the same.