The 47-year-old World Cup winner had reportedly emerged as a leading candidate to replace Gennaro Gattuso after Spaniard Pep Guardiola turned down the the job.
However, Pirlo's candidacy came under scrutiny because of his role as a global ambassador for Russian bookmaker Fonbet, prompting objections from Italian Football Federation (FIGC) officials and from Italian lawmakers.
Pirlo defended his involvement with the company earlier on Monday in a post on Instagram. He said he had been informed on Sunday that he was no longer being considered for the Italy job.
"After learning last night that I am no longer the candidate to lead the Italian national team, I believe it is my duty to clarify a few points," he said on social media.
"Over the past few days, I have watched with great bitterness the debate that has developed around my name and the possibility of taking on the role of Head Coach of the Italian national team.
"Throughout my career, first as a player and now as a coach, I have always carried out my work in full compliance with the laws of the countries where I have worked and with the contracts I have signed."
Fonbet agreement
Pirlo, currently managing United Arab Emirates Pro League side United FC in Dubai, signed an ambassadorial agreement with Fonbet in October.
He said the collaboration was exclusively commercial and sporting in nature.
"To assign a political meaning to that collaboration is to attribute to me beliefs that I have never expressed and that do not belong to me," he added.
Scrutiny of Pirlo's ties to the company intensified after he appeared alongside former Italy teammate Marco Materazzi at Moscow's Luzhniki Stadium during an event organised by Fonbet, drawing criticism as Russia's war in Ukraine continues.
"It is saddening to see that, despite your extraordinary contribution to world sport and to Italy’s image abroad, in your own country you are now the subject of ostracism by an establishment that many describe as 'pseudo-democratic'; a fate that, moreover, has already befallen thousands of Russian athletes, conductors, musicians, artists, and film directors in recent years," Alexey Paramonov, Russia's ambassador to Italy, wrote in a letter to Pirlo posted on Facebook.
FIGC technical director Paolo Maldini, the former AC Milan and Italy defender who took up the role this month, is responsible for identifying the next national team coach who will lead the four-times world champions' bid to qualify for the 2030 World Cup finals after failing to reach the last three global tournaments.