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She said she was not "abandoning ship" and would serve on the board for the remainder of the term.
"I will paddle hard for my community," she said.
In a statement, Mayor Jim Boult acknowledged the decision and thanked Ms Brown for her work during her time as chairwoman.
"I know the decision was not taken lightly and I am delighted that Rachel will continue to serve her community.
"Her knowledge and experience of local matters will be essential for a positive transition at a time when Wanaka has some big challenges ahead."
At yesterday's meeting, the board elected Cr Quentin Smith as the new chairman and Ruth Harrison as his deputy.
Cr Smith said he looked forward to continue working with Ms Brown, who he said remained "an outstanding advocate and representative of the board and her community".