Campaigners claim the plans would cause ‘substantial harm’ to its heritage and were heading towards the end of an eight-day planning hearing due to be concluded on Tuesday when the announcement was made.
Campaigners from action group Save Butterley Spillway (SBS) say they want to protect the ornate water management feature – built between 1891 and 1906 and which has become popular with villagers and tourists – from tonnes of concrete.
Yorkshire Water says it needs to carry out work to the spillway in order to comply with legal requirements.
A spokesman for SBS said: “The council has taken the position that it can no longer sustain its position at the inquiry and so has withdrawn.
“This is on the basis that having heard the evidence, the council believes, on balance, that the proposed scheme is preferable.
“SBS are obviously deeply disappointed with this development which is out of our control but we are continuing with the inquiry.
“The inspector will still need to make her own decision. The inquiry will close on Tuesday and a decision is expected within the next few months.”
A Yorkshire Water spokesman said: “We’re aware of the latest developments with regards to the public inquiry into our proposals to replace the spillway at Butterley reservoir.
“We’ll continue to support the inquiry, which we expect to be completed early next week.”
Colne Valley Tory MP Jason McCartney described the council’s move as “disappointing” but added: “Our fight continues. It should not be beyond Yorkshire Water to make it safe.”
No-one from Kirklees was available for comment.