Juppe, 71, was the most likely candidate to replace Fillon and try to unite their deeply divided Republicans party only seven weeks from the start of the two-stage election.
Polls suggest Juppe would be more popular with voters, but the centrist is considered too soft on immigration and other social issues for many of Fillon's supporters on the right flank of the party.
"I confirm for a final time that I will not be a candidate to be president of the republic," Juppe said in a downbeat statement that criticised Fillon and said France was "sick" and suffering from a "profound crisis of confidence".
The conservative 63-year-old was once the favourite to be France's next leader but his campaign is mired in accusations he used public funds to pay his wife hundreds of thousands of euros for fake parliamentary jobs.
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"No one today can prevent me being a candidate," Fillon told France 2 late yesterday, emboldened by a rally of tens of thousands of supporters in Paris earlier in the day.
This infighting and Fillon's chaotic campaign have made an already unpredictable election even harder to call.
The disarray appears to have benefited centrist pro-business candidate Emmanuel Macron in particular, as well as far-right leader Marine Le Pen, who are shown by polls as the top two candidates in the first round on April 23.
Polls suggest 39-year-old Macron would beat Le Pen in the decisive second round on May 7 -- but after Donald Trump's victory and Britain's vote to leave the European Union, analysts caution against bold predictions.
Fillon's defiance and accusations that the government, justice system and media were plotting against him have "led him into a dead-end", Juppe added in one of several criticisms of his colleague.
Both Le Pen and Macron -- one a far-right anti-establishment figure, the other an independent who founded a new political movement last year -- have tapped into widespread anger at France's political class.
"French people want a profound renewal of their politics," Juppe, a veteran politician with a conviction over a party finance scandal, told a press conference in his hometown of Bordeaux.