The explosion in West, Texas destroyed several homes, a school and killed 15 people in April.
FEMA said it reviewed the state's request for help, but the agency decided the incident "is not of the severity and magnitude that warrants a major disaster declaration."
The mayor says the community needs $57 million to repair roads, the damaged sewer system and the school.
FEMA already has provided millions of dollars in aid to the town and its residents, but the decision prevents them from getting some of the widespread assistance typically available to victims of tornadoes, hurricanes and other natural disasters.
As of Wednesday, the agency and the U.S. Small Business Administration had approved more than $7 million in aid and low-interest loans to West residents impacted by the blast. FEMA also is paying 75 percent of the costs of debris removal and will reimburse the state and the municipality for the initial emergency response.
FEMA denied the "major disaster declaration" both for public assistance - which would give money to the city to help rebuild - and for further individual assistance.
It's not unusual for FEMA to turn down that level of assistance for emergencies not stemming from natural disasters. For example, in 2010, officials denied a request for millions in aid after a gas pipeline explosion that consumed a Northern California neighborhood.
FEMA spokesperson Dan Watson said some funds would be available in West through insurance pay outs. Watson also said individuals can still receive rental assistance and some funds for rebuilding, and the state can appeal for more public assistance but some programs for individuals will not be made available.
The West Fertilizer Co. blew up on the night of April 17 after the plant caught fire. The cause of the fire remains unclear and a criminal investigation remains open. Investigators say the heat of the fire destabilized tons of a potentially explosive fertilizer stored at the plant, leading to the massive blast that leveled chunks of the town.
The blast emitted a wave of energy so strong it registered as a small earthquake, knocked down people blocks away, blew out windows, left a massive 93-foot crater and curved walls of homes and buildings.
The Associated Press contributed to this report.