Residents had been trying to keep the Harley Clarke Mansion public.
Hotel heir James Pritzker wanted to buy the lakefront property and turn it into a hotel.
The lawmakers' decision came as a relief to residents.
"I'm thrilled that they decided to stop the process and try to find some sort of more appropriate adaptive use for the building and the land," said Adam King, Evanston resident.
The mansion has housed an art center for 46 years, but the center has outgrown its space and plans to move out.
Several public meetings are planned to determine the mansion's future.
