Reports coming out of the Islamic Republic say that the president withdrew his candidate after failing to win parliamentary support ahead of a confidence vote.
Lawmakers had criticized Mahsouli for lack of experience.
It's the second time Ahmadinejad has faced rejection by parliament over his cabinet nominations since taking office in August.
Parliament is due to discuss Ahmadinejad's remaining candidates for the Education, Social Security, and Cooperatives ministries later today.
(with news agencies/Iran TV)