With most of the results for local elections announced throughout the country, the president's allies have failed to win control of any council.
With about 20% of the Tehran votes counted, Mr Ahmadinejad's supporters were said to be in a minority. Candidates supporting moderate conservative Mayor Mohammed Bagher Qalibaf were ahead.
Not a single candidate supporting the president won a seat on councils in the key cities of Shiraz, Rasht or Bandar Abbas.
The president's supporters have also failed to main significant gains on the Assembly of Experts, which can dismiss the supreme leader.
BBC Iran affairs analyst Sadeq Saba says the message is loud and clear and is likely to increase pressure on President Ahmadinejad to change his policies.
Reformists hailed the early results. The Islamic Iran Participation Front said: "It is a big 'no' to the government's authoritarian and inefficient methods."
The biggest winner, our correspondent says, is Mr Rafsanjani, who was defeated by Mr Ahmadinejad in the 2005 presidential elections.
Of course, Iran doesn't count as a democracy, because of the power of the Guardians to vet candidates etc. But it never belonged in the "Axis of Evil" alongside Iraq and North Korea, either. The Islamic Republic is a far less-bad regime than Saddam Hussein's ever was, a point missed by those, like Niall Ferguson, who think we should have regime-changed Iran instead of Iraq. Elements of consent and democracy in the Iranian regime give that regime some degree of legitimacy, whereas Saddam Hussein's government, based on pure fear, never had any at all. And the same elements of consent and democracy may yet bring the regime down. Khatami, alas, did not turn out to be the Gorbachev of the Islamic Republic. Perhaps Rafsanjani will be?
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