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The Labour-endorsed former environment minister was voted in 7 to 5, ahead of two-term deputy chairwoman Gretchen Robertson, at the council's first meeting of the term in Dunedin yesterday.
Cr Michael Laws became deputy chairman by the same margin.
He initially stood for the chairmanship after saying he would not.
However, after a break in the meeting and discussion with some councillors, including Ms Hobbs, he dropped out.
He indicated after this he favoured Ms Hobbs for the role.
After the meeting he implied he never intended to become chairman, but used the situation as a ''platform'' to address the need for change in the council.
Ms Hobbs was voted for by Crs Alexa Forbes, Kate Wilson, Laws, Hilary Calvert, Gary Kelliher, Kevin Malcolm and herself.
Cr Robertson voted for herself and was supported by Crs Michael Deaker, Carmen Hope, Bryan Scott and Andrew Noone.
Cr Laws was voted in as deputy by the same group that voted for Ms Hobbs.
After the meeting, Ms Hobbs and Cr Laws said there was no discussion in the break about him dropping out to get the deputy's role.
Ms Hobbs said she was ''excited'' about the role and overwhelmed at being chosen.
When she stood for the council she did not intend to stand for a leadership role, but other councillors approached her, she said.
''I had people supporting me who did desperately want change.''
In her speech to councillors before being voted into the role, she said she wanted ''enormous progress'' on water quality and access and to address mitigation and adaptation to climate change.
''I think there's a feeling out there that we are separate from the community.''
Cr Laws said he changed his mind so he could ''say his piece'' about the need for change.
Cr Robertson said after the meeting she had no comment on how the vote went.
She was also nominated as deputy chairwoman, but said the leadership roles should not both be based in Dunedin.
Council chief executive Sarah Gardner said she looked forward to supporting Cr Hobbs and other councillors ''on important issues throughout Otago''.