The decision to ban Orangemen marching along Portadown's Garvaghy Road was agreed by all members of the Parades Commission, its chairman has said.
The Parades Commission rules on contentious marches
Roger Poole praised the Portadown district officers for meeting them, but residents had not made the same effort.
It said allowing the 29 January parade through the mainly nationalist area could damage community relations.
Mr Poole said it was a unanimous commission decision, which includes two members of the Portadown lodge.
They are David Burrows and Don MacKay, who are members of the lodge, which was behind the application for the march at the end of the month.
The commission commended the Portadown Orangemen for their "genuine efforts to assist dialogue".
"It is our hope that an accommodation can be reached in Portadown which will bring long term stability to the parading issue at Drumcree," he said.
"Currently we believe that a parade along the Garvaghy Road may serve to destabilise the situation in that area.
"We are committed to facilitating a process of dialogue and mediation which I genuinely believe can help resolve this long running issue."
He added: "We heard that the district is willing to enter into a mediation process to seek a resolution to this issue.
"We also acknowledge the past engagement with the commission of the Garvaghy Road Residents' Coalition and we are disappointed that they did not respond positively to an invitation to meet the commission on this occasion. We hope this will change in the very near future."
A spokesperson for the Garvaghy Road Residents' Coalition said the decision "was not surprising".
"Few, if any people, expected the present commission to overturn almost eight consistent rulings prohibiting Orange marches from the Garvaghy Road at its first sitting.
"However, this decision does not alter the fact - the widely held view amongst the nationalist community that
this commission is clearly imbalanced in terms of make-up and representation."
The commission's decision comes a day after a delegation from Portadown Orange lodge held talks with the commission about the parade. The talks involved the Order's David Jones.
The Grand Master of the Orange Order, Robert Saulters, said the talks were in contravention of Grand Lodge policy.
The commission said it recognised the "genuine efforts on the part of the Portadown district officers" by formally meeting the commission.
Roger Poole hopes "an accommodation can be reached"
Orangemen last walked down the Garvaghy Road from a church service at Drumcree Parish Church in July 1997.
However, the Parades Commission has since banned them from parading down the road following objections by nationalist residents.
The commission was set up in 1997 to make decisions on whether or not restrictions should be imposed on controversial parades during Northern Ireland's marching season.
New appointments, including Mr Burrows and Mr MacKay, were made to the commission in November 2005.