Conservatives leader Colin Craig says the party decided it would not stand in the Northland byelection because it did not want to split the centre-right vote and help Winston Peters.
Its candidate also had a new baby and was not available, he said.
The party executive met on Saturday and made the decision.
In a surprise that day, National's locals picked Mark Osborne to run for the seat, which the party held at last year's election with a 9300 majority.
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Most predictions, including from National pundits, had been tipping party board member and local farmer Grant McCallum.
Mr Osborne works as an asset manager at the Far North District Council, where former long-serving MP John Carter is mayor.
Mr Peters, the New Zealand First leader, joined the contest on Friday, although his party has not stood a candidate there for the past three general elections.
Prime Minister John Key said yesterday on TVNZ's Q & A that Mr Peters' joining the contest was "all about Winston, and Winston not feeling that relevant post election". Mr Peters said National was panicking.
United Future leader Peter Dunne told the Herald last week that if National lost Northland, he would seek to renegotiate the concessions he got in his confidence-and-supply agreement with National.
Yesterday, Mr Key conceded that a win by Mr Peters could make Mr Dunne stronger and that would mean less Resource Management Act reform "and less reform in a lot of other areas".
The byelection is on March 28.