The contest was triggered after Mr Sarwar, who described the job as the hardest in UK politics, resigned to join the House of Lords with a trade role in Andy Burnham’s government.
Ms Lennon was relying on another Labour MP to nominate her, but she failed to secure the votes.
Katy Clark MSP and MPs Brian Leishman and Euan Stainbank backed Ms Lennon, who ran against Anas Sarwar in 2021 and fell short with around 42% of the vote.
At the last minute, Carol Mochan, an MSP in the South of Scotland region, opted to back Ms Lennon but did not make the decision public.
The pair have a longstanding disagreement on transgender rights, but are both members of the party’s communist wing.
Monica Lennon speaks at a hustings in Glasgow (Image: NQ)
The decision is likely to cause controversy with trade unions Unite and Unison, who backed the Glasgow MSP.
In a statement, Ms Lennon said: “Scottish Labour is stuck in the past. We are not listening to all of our members, the wider movement that built us or the millions of Scots who won’t vote for us.”
She added: “This leadership contest should have been a wide debate, rooted in courage, humility and the imagination to become a modern political party for workers and working class communities in Scotland.
“Our values mean nothing without vision, conviction and committed action.
“We must be a party where people can believe in fair work and a healthy planet; where women’s rights and LGBTQ rights are a shared struggle; where engaging in debate about Scotland’s place in the UK and the global community is a strength, not a weakness.”
Ms Lennon said young people’s futures were “on the line”, adding: “Our planet is burning and hope is fading. Punching down on trans people and other minorities is not acceptable.
“Do better, lead with decency and act with courage. Then, and only then, will there be a viable Scottish Labour Party worthy of the support of the people of Scotland.”
The leadership contest has been rocked by infighting and anonymous briefings.
Scottish finance spokesman Mr Marra will now battle Joe Fagan, the former leader of South Lanarkshire Council turned South of Scotland MSP, for leadership.
The results will be declared on September 19.
After the nominations closed, Mr Fagan said Scottish Labour “needs to be bold again”.
He said: “This campaign is about more than understanding what went wrong. It is about what Labour does next.
“It is about respecting work, backing our communities and giving working people real power over the future, not asking them simply to live with decisions made elsewhere.
“I want to rebuild Scottish Labour as the party of the working people of Scotland, rooted in our communities, serious about using power to change lives and ambitious enough to make Scotland’s future belong to the people who work, care, build, teach and keep our country going.
“That is the argument I will keep making throughout this contest, and if you share that vision, I hope you’ll join my campaign to change our party.”
Mr Marra said his party had to “rediscover our soul”, and warned it must “clean up” its internal culture.
He said: “Across the UK in May, we lost to political insurgents railing against a Labour leadership that had lost contact with the country.
“But in Scotland we lost to a feckless, incompetent and corrupt SNP whose two-decade record has seen every Scottish institution weakened and the opportunities of our population recede.”
First Minister John Swinney said Ms Lennon’s omission was a sign of a “stitch-up” in the contest.
“I think the Labour Party has got to explain its own internal mechanisms for selecting its own leader,” he said.
“I think, increasingly, the nature of the contest demonstrates the desperation of the Labour Party in Scotland today and the fact that a very popular candidate in Monica Lennon is not going to make it onto the ballot paper just rather suggests there’s been some sort of stitch-up within the Labour Party, which would be very typical of the Labour Party in Scotland.”