Some conservatives feel Ahmadinejad has spent too much time confronting the US and its allies and failed to deal with Iran's struggling economy.
The voting also represented a partial comeback for reformists, who favour closer ties with the West and further loosening of social and political restrictions under the Islamic government.
Leading reformist Saeed Shariati said the results of the election was a "big no" to Ahmadinejad and his allies.
"People's vote means they don't support Ahmadinejad's policies and want change," Shariati, a leader of the Islamic Iran Participation Front, the country's largest reformist party, said on Thursday.
Shariati, whose party seeks democratic changes within Iran's ruling Islamic establishment and supports relations with the US, said: "We consider this government's policy to be against Iran's national interests and security. It is simply acting against Iran's interests."
Similar anti-Ahmadinejad sentiment was visible in the final results of a parallel election held to select members of the Assembly of Experts, a conservative body of 86 senior clerics that monitors Iran's supreme leader and chooses his successor.
A big boost for moderates within the ruling Islamic establishment was visible in the big number of votes for Hashemi Rafsanjani, who lost to Ahmadinejad in the 2005 presidential election run-off.
Rafsanjani, who supports dialogue with the US, received the most votes of any Tehran candidate to win re-election to the assembly.
Also re-elected was Hasan Rowhani, Iran's former top nuclear negotiator whom Ahmadinejad repeatedly accused of making too many concessions to the Europeans.
In Tehran, the capital, candidates supporting Mohammed Bagher Qalibaf, the city's moderate-conservative mayor, won seven of the 15 council seats.
Reformists won four, while Ahmadinejad's allies won three. The last seat went to Ali Reza Dabir, a wrestling champion who won a gold medal in the 2000 Sydney Olympics and is considered an independent.
Final results for the rest of the country also showed a heavy defeat for Ahmadinejad supporters, and analysts said his allies won less than 20 per cent of local council seats nationwide.
None of his candidates won seats on the councils in the cities of Shiraz, Bandar Abbas, Sari, Zanjan, Rasht, Islam, Sanandaj and Kerman. Many councils in other cities were divided along similar proportions as Tehran's.
Iran started having council elections after a reform introduced in 1999 by Mohammed Khatami, the then president. More than 233,000 candidates ran for more than 113,000 council seats in cities, towns and villages across the vast nation on Friday.
All municipal council candidates, including some 5,000 women, were vetted by parliamentary committees dominated by ultra-conservatives. The committees disqualified about 10,000 nominees, reports said.
The election does not directly effect Ahmadinejad's administration and is not expected to bring immediate policy changes.
The local councils handle community matters in cities and town across the country. But it represented the first time the public has weighed in on Ahmadinejad's stormy presidency since he took office in June 2005.
The results are expected to pressure him to change his populist anti-Western tone and focus more on Iran's high unemployment and economic problems at home.
In an interview posted on December 19 the website of the Council on Foreign Relations, Ray Takeyh, the US think-tank's senior fellow for Middle East studies, says: "[Ahmadinejad] came into office pledging economic equality, economic justice, an end to corruption, a sort of chicken in every pot. And that has not come about, so there's a degree of disillusionment from the public that he's confronting today.
"... some of his core supporters in the lower-middle class and the working class are not that dissatisfied with him. It is the middle class that seems disenchanted.
"And also, not his conservatism per se, but his radicalism is beginning to rub people the wrong way. The confrontational rhetoric, the anti-Semitism and the opprobrium that he brings internationally to Iran is not something that's appreciated by the public."