Despite claiming on Wednesday that there had been no final decision as to who Washington was going to appoint, the former nuclear scientist was ruled out.
"Anybody suggesting that Shahristani is the prime minister is wrong," the unnamed official told Reuters.
A Shia Muslim who spent time in Abu Ghraib prison before exile, Shahristani said he did not want the PM job but was ready to shoulder the responsibility of steering Iraq to elections.
"I personally prefer to serve the people of Iraq in humanitarian fields as I have done since my escape from Abu Ghraib in 1991," he wrote in an email in English.
"However, putting the country en route to democracy and protecting the population from terrorists and violence is the responsibility of Iraqis, and we have to burden that responsibility."
Shahristani spent his time in exile in Iran, the UK and Canada.
Iraq's US-appointed government is taking shape, with other US officials leaking names of possible prime ministers and presidents.
Thirty government appointments are expected in a week or so.
Adnan Pachachi, a Sunni who was foreign minister in the 1960s, is currently tipped to be president.
But confusion remained on Wednesday over what power, if any, they would have over a huge US army occupying the country.
Within hours of a draft UN resolution, there were conflicting interpretations of how sovereign the new government would be over 150,000 US, British and other troops not under government control.