The nominee, Seyed Mohsen Tassaloti, has been accused of being a millionaire whose family spends most of its time abroad. Although his previous job was head of Iran's largest petrochemical zone, he lacks direct experience in oil and the oil ministry.
After being labeled by one MP as a "fourth-rate manager", he only managed to win the backing of 77 MPs in the 290-seat assembly.
"Each nominee presented by the president has been weaker than the previous one, and this shows that Ahmadinejad wants to select his allies rather than use experienced managers," said Mahmoud Mohammadi, a moderate deputy.
"The oil ministry is too important for the country. It needs a specialist."
In August MPs in the conservative-controlled parliament refused to give their backing to Ahmadinejad's first choice on the grounds that he was unqualified. The president was dealt another embarrassing blow earlier this month when deputies forced him to withdraw his second nominee.
The previous nominees had also been shunned over their lack of experience in the oil sector - which accounts for 80 percent of Iran's export revenues.
A senior deputy also acknowledged that the dispute over the post - which has exposed divisions within Iran's rightwing camp - was damaging to investor confidence and Iran's image within OPEC, where the Islamic republic is the number-two producer.
"Our position inside OPEC has been weakened, and our foreign project partners are worried. This is not just a domestic issue," Kazem Jalali, spokesman for the Majlis foreign policy commission, said.
He said that the only consolation was that the vote proved that Iran "is not heading toward a dictatorship" where the parliament - controlled by a mix of centrists, moderate conservatives and radicals - simply follows the hardline government of Ahmadinejad.
The latest rejection also keeps the brakes on Ahmadinejad's populist promise to purge a ministry that he argues is controlled by a "mafia" and redistribute the huge oil revenues among Iran's poor.
Ahmadinejad appeared to concede defeat before the vote, and walked out of the chamber without using the 20 minutes allocated to him to again defend his choice.
Despite widespread concerns that the spat is causing stagnation in the oil sector, the head of the parliament's influential energy commission played down the risk of serious fallout.
"The absence of an oil minister is of little consequence because the ministry can function by itself and the president is monitoring it," Kamal Daneshyar insisted.
Mohammad Khoshchehreh, a conservative deputy and economist, also voiced optimism that the damage to the sector - the backbone of Iran's economy - would be limited.
"The oil industry will continue to function just like during the war with Iraq, although this could have an effect on its rhythm," he explained.
"The absence of a minister could have negative consequences, but the price to pay is less than if we had approved a weak candidate."
© 2005 Agence France-Presse
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