In the 1994 municipal elections, he was elected to the Metro Toronto council from ward Scarborough/Wexford, defeating Michael Thompson. He emerged as one of the most right-wing members of the council, most noted for his attempt to eliminate all funding for multiculturalism programs during a mock council. Kelly took this stance as he views multicultural programs to further segregate rather than integrate diverse members of the Canadian community. The National Post newspaper once endorsed him, perhaps somewhat in jest, as "a solid anti-communist. Toronto needs his representation as a bulwark against the left." He also became one of the earliest advocates for merging the City of Toronto with five of its suburbs, an idea he pushed as Chair of the Intergovernmental Affairs Committee.
When the "megacity" was created, he was elected to the new Toronto city council. In the 2000 municipal election, redistricting merged Kelly and Tzekas' wards, leading to a bitter election battle between the two, which Kelly easily won. A firm ally of the new city's first mayor, Mel Lastman, his relations with Lastman's successor, David Miller, were less friendly.