The ".xxx" domain proposal has been criticised by both religious groups and those in the adult-entertainment industry, but ICANN's reason for rejecting the proposal focused on concerns that ICANN would be left to regulate website content.
Paul Twomey, ICANN's chief executive, who abstained from the vote, had earlier in the week described the proposal as "clearly controversial, clearly polarising".
The vote is the third time ICANN has rejected such a bid and comes seven years after the proposal was first floated by ICM Registry, a privately owned investment holding company.
Stuart Lawley, ICM's president and chief executive, said he was "extremely disappointed by the board's action".
He said ICANN's rejection of the proposal was "not supportable for any of the reasons articulated by the board ... and makes a mockery of ICANN bylaws' prohibition of unjustifiable discriminatory treatment", and added that ICM would pursue the matter further.
ICM Registry intends to work as a for-profit domain registry for the ".xxx" domain, a potentially lucrative proposition considering more than a third of US internet users visit adult sites each month, according to data form comScore Media Metrix.
The website measurement firm said four per cent of all internet traffic and two per cent of all time spent searching the web involved an adult site.
Nearly all of the board members who voted against approving the domain said they were concerned about the possibility that ICANN could find itself in the content regulation business if the domain name was approved and many said that local, state and national laws could be used to decide what should be considered pornographic.
Steve Goldstein, an ICANN board member said he was concerned ICANN "would be forced to assume ongoing management and oversight roles regarding the content and that is inconsistent with ICANN's technical mandate".
Many adult entertainment sites opposed to ".xxx" domain address. They have largely been concerned that the domain name, while billed as voluntary, would be used by governments to push sexual content into what the adult-entertainment industry terms an "online ghetto".
ICM though had said it would fight any government effort to compel the the use of the address and cited pre-registrations of more than 76,000 names as evidence of support.
Religious groups have also been concerned by the "xxx." domain, saying that it would legitimise and expand the number of adult sites.
ICANN originally considered a similar proposal for the ".xxx" domain name in 2000.
ICM resubmitted its proposal in 2004, structuring it with a policy-setting organisation it hoped would free ICANN of that task of regulating content.
But many board members worried that the language of the proposed contract was too vague and would still land ICANN with the task of regulating content.
ICANN revived the proposal in January, after ICM agreed to hire independent organisations to monitor adult sites' compliance with the new rules which would be developed by a separate body called the International Foundation for Online Responsibility.
ICM revised the proposal again a month later to clarify ICANN's enforcement abilities and to underscore the independence of the policy-making body.
ICANN will no longer hear the proposal, but it would be possible for an entirely new application to be drawn up and submitted for consideration.