Cllr Jerry Roodhouse hailed the decision a "victory for patients and communities" after the Government confirmed on Wednesday (28 October) the plans were being withdrawn from the NHS Modernisation Bill currently progressing through parliament.
Healthwatch England gives patients a voice on NHS services and social care, with more than 150 branches representing patient views and working to improve health services, both locally and nationwide.
While announcing the watchdog's reprieve, the Government also committed to strengthening Healthwatch England and its branches to ensure patients and communities have a say and can influence change.
Cllr Roodhouse, who sits on the board of Healthwatch Warwickshire, said: "Healthwatch England and its local branches play a vital role in ensuring patients' experiences help shape and improve health and social care services.
"We welcome this week's Government announcement as a victory for patients and communities.
"We must the put the patient experience at the centre of how we modernise, develop and design health and social care services, and Healthwatch puts patients' voices at the heart of the conversation."
Cllr Maggie O'Rourke, Rugby Borough Council portfolio holder for partnerships, health and wellbeing, said: "It's essential we hear the authentic voice of our service users - people must have a platform to share experiences, raise concerns and, when necessary, call for change.
"Retaining Healthwatch and committing to strengthening its role helps keep patients and residents part of the conversation, but listening is only the first step.
"We must use these experiences to improve services, challenge shortcomings and make sure our health and social care services have been designed around the needs of individuals and communities."
For more information about Healthwatch, visit www.healthwatch.co.uk