Despite going into the contest a warm favourite, defeated challenger Joe Hockey said he supported Mr Abbott and respected his colleagues decision.
"There is always a surprise in these ballots," Mr Hockey said.
"I had one today."
Mr Hockey said he tried but could not build a consensus on how to take the Liberals forward over the Government's emissions trading scheme, and was unwilling to compromise on his belief that action was needed on climate change.
"Over the last few days I've been asked to be disloyal to my leader. I cannot," Mr Hockey said.
"I was asked to be a hypocrite to my principles. I cannot."
While Mr Abbott made it clear he wanted Mr Hockey to stay on as shadow treasurer, the North Sydney MP said he was still undecided about whether he would keep the portfolio. He is likely to remain on the frontbench.
"I want to have further discussions with Tony. Tony and I go back a long way," Mr Hockey said.
"I'm not a quitter. I'm putting the interests of my party first."
Most extreme storm to hit South Australia in decades has crippled power supplies across the state.