The reorganised Blackburn with Darwen BC becomes unitary in April next year. Six people were interviewed for the new chief executive position, with the job going to Philip Watson, deputy to Mr Davies.
Leader Malcolm Doherty, who chaired the 13-member selection panel, said he could not comment on individuals' motives in the appointment. He said the council was adopting a new management structure and there was a feeling within the authority that it was time for a fresh direction.
He said Mr Davies had been a 'first-class chief executive' during his seven years of office and his missing out on re-appointment did not reflect on his ability. He had been instrumental in leading the council's bid for unitary status.
Mr Watson is already acting as chief executive on matters relating to the new unitary and Mr Davies is handling issues relating to the old council.
Under the new structure there are three executive directors and 12 departmental heads. The six serving directors at Blackburn have all been appointed to posts with the new council, with one executive post remaining to be filled.