The move, after an October visit by two Australia-based analysts, was "gratifying", Dunedin City Council finance and corporate support general manager Athol Stephens said.
The city was downgraded from AA to AA- in 1999.
Analysts kept a close eye on the city and were well aware of the issues it faced, Mr Stephens said.
The improved rating followed the agency's September re-evaluation of its rating methods, and what it considered the strong "institutional framework" for local governments in New Zealand.
The improved rating was given to both the council and its company Dunedin City Treasury Ltd (DCTL).
DCTL chief executive John Knight said the improved rating was "nice, but from a practical point of view makes very little difference". AA- and AA were "very similar" ratings, he said.
Mr Stephens agreed. Standard and Poor's considered New Zealand local authorities were "relatively unconstrained" in the way they could rate residents.
"We are controlled by the democratic process; we get fired if they [rates] are too high."
But there were no issues like capping of rates to CPI, which occurred in New South Wales, or government intervention in what local governments did.
In that environment, and with the visit to Dunedin, Standard and Poor's had decided to put the rating "up a notch".
Standard and Poor's credit analyst Claire Curtin noted the stable outlook the council was given reflected the company's expectation the council would retain its "strong financial position and fiscal discipline".
"We expect the pace of growth in indebtedness to slow, and that gross tax-supported debt will remain beneath 160% of revenues and remain somewhat ameliorated by Dunedin city's strong on-balance-sheet liquidity."
The factor most likely to result in a reassessment of the rating would be a rapid increase in debt, which Mr Stephens said was not planned.
He said there had been no surprises for the analysts, which was good, as "they don't like surprises".
