Queanbeyan-based upper house MP Steven Whan has withdrawn his name from the NSW Labor leadership ballot, tipping Luke Foley to win the race.
Mr Whan said it was clear he would not be able to win now that Mr Foley had nominated.
"I knew when I put my name forward that if Luke Foley decided to run with head office support, it would be extremely difficult for me to win," he said.
"It was clear I'm not going to get the 19 votes needed.
"I have great admiration for Luke Foley and Michael Daley. But Luke's received the support of head office which means he'll win support of Caucus overall.
"Had Mr Foley decided not to run, I am confident that NSW Labor would have been able to have its first country based leader since Jack Renshaw and I believe that would have been good for our party."
Mr Whan insisted he was not pressured into pulling out.
"I can say in all honesty nobody has suggested to me that I should withdraw my candidacy from any part of the Labor party. It's my decision," he said.
Mr Whan indicated he believed he might have had more luck had ALP members decided the ballot.
"I've actually had a lot of support from rank and file members so it could have been interesting had we gone to a rank and file process in this case," he said.
But with only a few months to the March election, it was "appropriate" that Caucus chose the leader.
Mr Whan announced his candidacy on Christmas Eve, saying he would bring a "fresh approach" to the party as a regional candidate.
The Queanbeyan local is an upper house MP but will contest the Queanbeyan-based seat of Monaro at the March election, a seat he held from 2003 to 2011.
He previously served as the minister for emergency services, rural affairs, primary industries and small business. He filled a casual upper house vacancy after losing the lower house seat in 2011.
Mr Whan said he would still fight for the Monaro seat in March, currently held by NSW National MP John Barilaro.
"Despite pulling out of the leadership ballot, I won't take a backward step on standing up for regional NSW or for the electorate I am seeking to win at the next election," Mr Whan said.
Mr Whan said either Mr Foley or Michael Daley, who has also nominated for the vacant position, would make a good leader.
Mr Foley, who is favoured to win by party head office, said on the weekend that if elected leader he would bring energy, ideas and "timeless Labor values" to the leadership.
Caucus will decide on January 5 who will take on the leadership, following John Robertson's sudden resignation last week over revelations he had signed a letter of request for Lindt cafe gunman Man Haron Monis in 2011 as his local MP.
Like Mr Whan, Mr Foley is an upper house MP. It is understood he will stand for preselection in the seat of Auburn.
Deputy leader Linda Burney ruled herself out of the leadership contest on Sunday. Mr Whan credited her for her guidance in a turbulent period for NSW Labor.
"She has done the party a great service in staying as deputy as it gives us stability at a time when we could have quite a bit of instability," Mr Whan said.