Burma's de facto leader, who completed her undergraduate degree at Oxford University, was granted the honour in 1997 for her "struggle for democracy".
But Oxford City Council voted unanimously to support a motion that said it was "no longer appropriate" to celebrate Ms Suu Kyi, who has come under fierce criticism for inaction in the face of reported atrocities against Rohingya Muslims in Burma's Rakhine state.
More than 500,000 people have fled across the border to Bangladesh since late August.
Oxford's reputation is “tarnished by honouring those who turn a blind eye to violence”, local councillor and Labour party member Mary Clarkson said in a speech proposing the motion.
“While the UN calls the situation a 'textbook example of ethnic cleansing', Aung San Suu Kyi denies any ethnic cleansing and dismisses numerous claims of sexual violence against Rohingya women as 'fake rape'”, Ms Clarkson said.
In a speech in late September, her first public statement on the subject since the exodus of refugees began, Ms Suu Kyi condemned all human rights violations and promised to punish perpetrators.
But she did not address accusations of ethnic cleansing and did not criticise the army's actions. Her speech was described as “little more than a mix of untruths and victim-blaming” by Amnesty International director for the region, James Gomez.
A similar Freedom of the City award is being considered for withdrawal by Sheffield city council in the north of England, after residents submitted a petition last month.
The award will likely be reviewed by councillors this month, the council's democratic services team, which handles petitions, told Reuters.
Ms Suu Kyi's former college St Hugh's removed her portrait from public display last week.
Meanwhile Unison, Britain's second-largest trade union, announced last month it would suspend her honorary membership.
More than 400,000 people have called for the Ms Suu Kyi to be stripped of her Nobel Peace Prize, but the Nobel Institute said it was impossible to remove an award once it had been bestowed.
Reuters contributed to this report
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