The researchers said their exercise programme "does not slow cognitive decline in people with mild to moderate dementia".
It is widely accepted that exercise can delay the begning of Alzheimer's and other forms of dementia.
Exercises were tailored to the person's health and abilities, and were created to improve cardiovascular fitness and strength. Few studies have involved humans.
Oxford University studied almost 500 people, with an average age of 77 years, in 15 regions across England who were randomly given either supervised exercise and support programmes, or normal elderly care.
Indeed, patients who participated in the exercise programme showed slightly worse scores.
Those in the exercise program (329 people) took part in 60- to 90-minute group sessions twice a week for four months.
The sessions included 20 minutes on a fixed cycle and lifting weights while getting out of a chair. "It may also be that better off people have greater social and cultural opportunities that allow them to remain actively engaged with the world". Compliance with the exercise program was good.
Compliance with exercise was good and participants were assessed again at six and 12 months.
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Although several recent studies reported that exercise may improve memory and slow down mental decline, there have also been studies with conflicting results.
In the exercise group, the decline was steeper, "however, the average difference was small and clinical relevance was uncertain", said a press statement. But the authors said the benefits "do not translate into improvements in cognitive impairment, activities in daily living, behaviour, or health related quality of life".
While the exercise programme did improve people's physical fitness, at least in the short term, it did not improve their quality of life or ability to care for themselves, or the quality of life of those caring for them.
The study has several important limitations.
Koppel believes there was too little supervision of the study participants to be sure they were doing the exercise as recommended. People who exercise more are less likely to get dementia, possibly because it maintains blood flow to the brain.
"I was disappointed by the results, although I probably wasn't completely surprised", Sarah Lamb, the study's lead author and a researcher at Oxford University, told Guardian reporter Sarah Bosely. Carers were asked to take the decision on behalf of people whose dementia meant they were unable to.
"We don't want to alarm members of the public with dementia and their families".
The disappointing results are a setback for researchers, who had hoped an exercise programme might improve people's ability to carry out everyday tasks such as washing and dressing.