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The BJP has nominated Sanjay Upadhyay from the Borivali seat for the November 20 state assembly polls.
Monday is the last day for withdrawing nominations.
On Sunday, BJP national general secretary Vinod Tawde held a meeting with Shetty to persuade him to withdraw his nomination.
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Another BJP rebel, Sweekruti Sharma, from Andheri East assembly also announced withdrawal of her nomination.
Shetty’s rebellion was seen as a blow to the BJP in its stronghold.
He won the Mumbai North Lok Sabha seat by margins of more than four lakh in 2014 and 2019, but was denied a ticket in the 2024 general elections. The seat was won by senior BJP leader Piyush Goyal, who is now Union minister.
Shetty, a veteran of the Mumbai north region, was MLA from Borivali in 2004 and 2009. He was also corporator from the area for several years.
In 2014, Shetty won the Lok Sabha election, and the BJP nominated Vinod Tawde from the Borivali assembly seat, considered one of the safest constituencies for the party.
Tawde was not re-nominated in 2019 and he later became BJP’s national general secretary.