Queanbeyan-based Mike Kelly is pulling out of the contest to fill the Senate position vacated by former Foreign Minister Bob Carr.
Dr Kelly made the announcement following a meeting in Sydney on Monday evening of the Labor Party’s Right faction.
It is understood the faction went ahead with the plan to endorse another defeated Labor MP, Deborah O’Neill, who is against gay marriage, for the position.
The decision is expected to be ratified by the NSW ALP administrative committee on Wednesday.
The factional win could spark widespread criticism that the Labor Party has not changed its ways, despite its massive election defeat.
Dr Kelly held Eden-Monaro for six years and was minister for defence materiel in the Labor government before being narrowly defeated at the election.
He had offered to serve in the Senate for only three years, and leave the upper chamber to contest his former electorate at the next election.
Mr Carr was parachuted into the Senate and the plum role of foreign minister 18 months ago by then prime minister Julia Gillard.
He has resigned just six weeks after winning his seat in the election that put the Labor Party into opposition.
In his final speech as a politician, to the United Nations Association last week, he endorsed Dr Kelly for his senate seat.
The Shop, Distributive and Allied Employees’ Association, the largest trade union in Australia with about 230,000 members, is backing Ms O’Neill for the senate vacancy, which will be filled by the NSW Right.
The union’s national secretary Joe de Bruyn had slammed the Gillard Labor government for ‘‘pandering’’ to the Greens on gay marriage.
While Ms O’Neill is being promoted on gender grounds, Australian Workers Union boss Paul Howes suggested his pro-gay marriage views were a factor in opposition to him within the Right when he pulled out of the Senate race.
Ms O’Neill spoke in favour of a conscience vote in federal Parliament, and against gay marriage, at Labor’s national conference two years ago.
“We prize marriage and understand it very certainly as a union between a man and a woman,” she said then.