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The decision, labelled as "outrageous" by Cr Bryan Scott, was made after the regional council appealed a decision by the Dunedin City Council to grant the Holt family consent to build a pole house 3.7m above sea level.
The Environment Court rejected the appeal and ordered draft deeds be made with the city and regional councils where the landowners bear the risk of the property flooding and do not seek flood protection works.
Cr Scott said at this week's council meeting it went against the "thinking and previous debate" the regional council had about development on flood-prone areas of the Taieri Plain.
"This isn't the end of the matter. It's just the start."
Cr Gretchen Robertson said the decision could set a legal precedent that would affect all regional councils, as building on flood-prone areas put more than just the owner's health and safety at risk.
"It could set a dangerous precedent and we need to take it further."
Cr Duncan Butcher asked if the decision meant the regional council, when issuing consents, could also impose "if it floods, don't come back and cry on our shoulder" conditions.
It also made the regional council's investigation of a private district plan change a "waste of time" because if the council was taken to court there was a precedent.
"Where the hell is it going to end?"
Chief executive Graeme Martin said staff were investigating further legal action because of the issue of precedent but there were not many points of law to take it on.
Cr Stephen Woodhead said given the concern about precedent, "no matter how skinny the point of law is, we need to have a go".
Chairman Stephen Cairns said the decision had been put before a local government regional affairs committee meeting Environment Minister Nick Smith last week regarding the possibility of a national policy statement on flooding.
"The decision and its consequences were not lost on the minister."
However, Cr Sam Neill said the court had quashed the council's appeal so that should be the end of the matter, otherwise the council was getting into "big brother" territory.