Miriam Lau Kin-yee will resign as Liberal Party chairwoman after failing in her first attempt to secure a directly elected seat.
Lau, who stood on Hong Kong Island, made her decision despite an increase in her party's seats in the legislature from three to five.
"I failed to lead my party to success in the election and it's time someone else became the party's leader," she said, adding she would decide later whether to stand in the next election.
The party's executive committee will hold a meeting soon to discuss whether to accept her resignation.
Its only directly elected lawmaker, honorary chairman James Tien Pei-chun, staged a comeback in New Territories East after losing in 2008. Chung Kwok-pan won in the textiles and garment sector, and Tommy Cheung Yu-yan in catering, Vincent Fang Kang in wholesale and retail, and Frankie Yick Chi-ming in transport - were all returned unopposed.
Lau, an appointed legislator from 1988 and representative of the transport functional constituency since 1995, said she had been at a disadvantage against candidates who had run for direct election before.
She lacked support at district level and her campaign had begun too late, so she did not have time to communicate with people on Hong Kong Island.
Lau said she did not regret running for direct election and had learned a lot. She said she had decided to compete on Hong Kong Island because she believed a party leader should have the courage to run for direct election.
"There are many young and promising people in the party. I will decide later whether I will run for Legco again in the next term."
Tien said Lau's loss was also a loss for the Legislative Council and Hong Kong, as there would be one less experienced lawmaker to discuss policies.
He said he was upset and hoped Lau could stay on as chairwoman. He had not thought about taking over as leader himself. The wealthy businessman secured 31,016 votes in New Territories East, putting him eighth in the nine-seat constituency.