|Head of Chirac's ruling party UMP,|
Alain Juppe (R), is disappointed by
The results were extremely close as final exit polls showed the 'No' side win with 50.98 percent compared to the 'Yes' side's 49.02.
Government officials said turnout was at 60 percent.
The French government was hoping that a "yes" result to its proposal would contribute to ending three decades of agitation by those seeking independence for the Mediterranean island.
But the "no" result has embarrassed President Jacques Chirac who had invested much personal prestige in the initiative as well as his centre-right government.
President Jacques Chirac said he regretted the outcome and released a statement saying the French state would continue to help the island and combat any violence.
Surveys in recent weeks proved to be accurate as they suggested the island was virtually split in half over the referendum's question, which asks them whether they want to change their status within the French Republic.
Commentators offered various suggestions for the government failure, one of them being that voters who would have said "Yes" did not want to be in the same camp as radical nationalists.
Others attributed the tiny "No" victory – by 2,190 votes – to the complexity of the institutional reforms presented, fears that civil service jobs would be lost and confusion because there was no classic left-right divide on the issue.
Some 191,000 voters were asked if they wanted to scrap two administrative departments and back changes that would give an assembly of locally elected politicians more say over matters such as tax, tourism and the environment.
High profile arrest
On Friday, the arrest in southern Corsica of Yvan Colonna, a 43-year-old goatherd suspected of assassinating Corsica's prefect in February 1998, has further clouded predictions.
Colonna, who topped France's most-wanted list, allegedly shot Claude Erignac in Corsica's main city of Ajaccio.
|Colonna's arrest on Friday was|
high-profile, coming just three
days before the vote
It was the worst act of separatist violence in Corsica since unrest started 28 years ago.
Erignac's murder marked a dramatic departure from the frequent middle-of-the-night bomb attacks against banks, police stations and other symbols of Paris's rule - attacks that have continued to this week.
Colonna had in the past denied to the media that he played any part in the assassination.
Previous governments have tried and failed to calm the island, which has undergone four changes to its administrative status in the last 25 years.
Corsica is both the poorest and the most heavily subsidised part of France, which took possession of it two and half centuries ago.
Best known as the birthplace of Napoleon Bonaparte, the relatively unspoilt character of its craggy mountains and many beaches has made it a major tourist destination for Europeans.