That ends a bold gambit by the anti-military coalition to boost its popularity and insulate itself against charges of being anti-monarchy, by having the king's flamboyant older sister Ubolratana run for prime minister, although her nomination can not be legally withdrawn.
The Election Commission on Monday afternoon declared that the eldest daughter of the late King Bhumibol can not compete in the upcoming election as a candidate for prime minister.
The party said it complied "with the royal command with loyalty to the king and all members of the royal family".
Thailand's Electoral Commission announced on Monday that the "monarchy must remain above politics".
Still, Paiboon Nititawan, the pro-military People Reform Party leader, has called on the Election Commission to meet Monday to consider dissolving the Thai Raksa Party for nominating the princess despite withdrawing her nomination.
Members of the royal family should be "above politics" and therefore can not "hold any political office", the commission said in a statement, echoing the wording of a public statement from the king on Friday. Among the candidates for prime minister is the current junta leader Prayuth Chan-ocha, who as army chief led the coup.
Ubolratana Mahidol has filled many roles in her 67 years, from Thai princess and royal rebel to Californian mother, pop singer, film actress, charity worker and flamboyant social media celebrity.
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Parties loyal to Thaksin, a former telecommunications tycoon, have defeated pro-establishment parties to win every election since 2001, but since 2006 each of their governments have been removed by either coups or court judgments.
Bloomberg observed that "the move by King Maha Vajiralongkorn's sister shocked a nation where top royals are officially treated with semi-divine status and protected by strict lèse-majesté laws that shield them from criticism".
On Sunday, an activist said he would file a petition to disqualify the Thai Raksa Chart party, which nominated the princess.
The royal announcement added: "Bringing a high-ranking member of the royal family to politics, in whatever manner, is an act in violation of the royal tradition and national culture and highly inappropriate". The party said it would accept the king's message and "move forward into the election arena to solve problems for the country".
Thaksin has lived in self-imposed exile in England since he was deposed.
However, in a statement read on all Thai television stations within hours of her announcement as a candidate, King Vajiralongkorn said it was "inappropriate" and unconstitutional for members of the royal family to enter politics.
If the party is dissolved, it could give more seats to anti-Thaksin affiliated parties, he said, although there are other parties loyal to the ex-premier contesting the election.