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Environmental organizations hit out at Chile's Senate on Thursday for rejecting a measure that would have made water officially a resource for public use.
Activists also called on the public to vote in April to change the dictatorship-era constitution so that new rules can be approved around the exploitation of natural resources.
The center of Chile has been hit by a major drought due to a decade of scarce rainfall.
The bill's rejection on Tuesday "demonstrates that business interests, mainly mining, agriculture (and) hydroelectric businesses prevail," Alexander Panez, spokesman for the Movement for the Defense of Water, the Earth and Environmental Protection, told AFP.
Greenpeace Chile said the Senate's move is "a national disgrace" while the country is "in the middle of the worst water crisis in our history."
Activists say the use of water for agricultural and mining production has contributed to this scarcity and left more than 600,000 people without running water in their homes.
The constitutional status of water is one of the main topics that social movements want addressed in any eventual new constitution.
Chile will hold on April 26 a referendum on whether -- and how -- to change the constitution that was enacted under former dictator Augusto Pinochet, who ruled from 1973-90.
Following two months of social unrest, Chilean President Sebastian Pinera agreed last month to enact a law to enact a law to allow the constitution to be changed.
That was one of the primary demands of protesters who have hit the streets regularly since October 18, demanding that measures be taken to reduce inequality.
Those demonstrations have at times turned violent and left 29 people dead and thousands injured.
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