The federal Labor caucus this morning voted on whether it should be led by Gillard or Rudd.
Gillard retained leadership after receiving 71 votes compared to Rudd's 31 votes.
Rudd will now be relocated to the backbench and has previously stated he would not make any future tilt for the role.
However, there is a precedent over these matters in the Labor party dating back to the leadership struggle between Paul Keating and Bob Hawke.
Keating lost his first ballot for the top job against Hawke by 66 votes to 44 in June, 1991 but when he made a second challenge six months later he won by 56 votes to 51.
Rudd was dumped as prime minister in 2010 after a leadership showdown with his then deputy Gillard and ended up becoming foreign affairs minister.
However, Rudd resigned from this position last week, taking a swipe at the "faceless men" or union-related factional leaders within the Labor ranks who backed Gillard into power in 2010.
On Friday, Rudd announced he would be contesting the leadership of the Labor Party, despite many commentators saying he would not have the numbers in the caucus to get across the line.