After seven years as the member for Holsworthy, Melanie Gibbons has lost out to challenger Tina Ayyad, a former deputy mayor and school teacher.
The decision comes amid a push within the Liberal Party to ensure women are better represented at the March state election, with Treasurer Matt Kean endorsing a 50-50 gender quota across all seats.
Ms Gibbons' ousting was described on Friday as regrettable, although Liberal Party sources were also supportive of Ms Ayyad's selection.
"They are both great candidates," one told AAP.
Ms Gibbons lost a secret ballot 24-12. The result will need to be ratified by the party's state executive - a procedural matter unlikely to see the outcome upset.
After a term as the member for nearby Menai, Ms Gibbons took Holsworthy in 2015.
She retained the seat at the 2019 election on a margin of 3.3 per cent after a swing of 3.4 per cent to Labor challenger Charishma Kaliyanda.
The seat is considered 'in play'.
Labor has not yet endorsed a candidate for Holsworthy.
Ms Kaliyanda, a mother-of-three and a former deputy mayor on Liverpool City Council, will run for the seat of Liverpool.
12°C