The city council in Viana do Castelo, which has a socialist majority, voted in favour of the ban on Friday, officials said.
"The defence of animal rights is not compatible with spectacles that torture and impose unjustifiable suffering," said city mayor Defensor Moura, adding he had received more than 1 000 congratulatory e-mails from around the world.
Anti-bullfighting and animal rights activists hailed the move as setting "an example of modernity" they hoped would be followed.
"We think that this decision by city hall in Viana do Castelo will have a domino effect and lead other towns to follow this example of civility and modernity," said Rita Silva, a leader of the Animal Association.
For the past few years, Viana de Castelo had only allowed one bullfight per year during the city's festival days in August.
The city says the arena will now be demolished to make way for a cultural centre.
Unlike bullfighting in Spain, the Portuguese version does not end in the bull being killed in the ring.