Denyer pleaded guilty to stabbing and strangling Elizabeth Stevens, 18, Debbie Fream, 22, and Natalie Russell, 17, over a seven-week period in the Melbourne bayside suburb of Frankston in 1993.
He was sentenced to life in jail with no parole, but that was reduced on appeal in 1994 to a non-parole period of 30 years.
In May, Victoria's Adult Parole Board told the families of his victims that Denyer's application for parole had been refused, but they have been trying to ensure he cannot re-apply in future.
A coalition-backed private members' bill would have prevented the board from considering another application from Denyer unless he was in imminent danger of dying or so incapacitated he was no longer a danger.
It was put to a vote in the upper house on Wednesday, but Labor, Greens and Legalise Cannabis MPs teamed up to defeat it.
Ms Russell's sister Lisa Knight, friend Karen and Ms Fream's son Jake Blair were in the chamber to watch the vote fail 19 votes to 17.
"Today has been one of the worst days of our lives since Denyer was granted a parole application," they said in a joint statement.
"We have not been granted peace today. We walk away with no closure and still no idea when we will have any.
"The government has given us nice promises but nothing else. They've said they care about how this impacts us, it's now up to them to prove they meant that."
Vikki Petraitis, a true crime author who has followed the Denyer case since the 1990s and become close to the families, said they had hoped to draw a line under their "torturous" experiences.
"The stark reality is that even though (MPs) expressed that they wanted to help the families, they could have finished this today," she said.
The Denyer bill mirrored previous legislation introduced for Hoddle Street shooter Julian Knight and Russell Street bomber Craig Minogue.
If the legislation passed, the Andrews Labor government would still have the option of blocking it in the lower house with its overwhelming majority.
The families disputed a suggestion from Attorney-General Jaclyn Symes that the coalition was rushing through the laws, saying they had been fighting to keep the public safe from Denyer since 2021.
Ms Symes formally wrote to the families on Wednesday to outline the government's plans to amend the Corrections Act so the independent board could refuse to consider parole for a set period after a failed application.
She said the government's proposed reforms were preferable to "one-man legislation", avoiding the possibility of a High Court challenge as launched by Knight and Minogue.
"The government does not believe that the parliament should become judge, jury and executor for individuals," Ms Symes said.
Crossbench MP David Limbrick, who was in a relationship with Ms Russell at the time of her murder, agreed with Ms Petraitis that the incoming reforms were a partial win for the families after pressure was put on the government to act.
He and opposition corrections spokesman Brad Battin pledged to work with the government to give the families closure and protect Victorians' safety.
