The 30-year-old suffered the injury last year and has not played on the ATP tour since losing in the quarter-finals at Wimbledon.
"Sadly I won't be playing in Melbourne this year, as I am not yet ready to compete," Murray said in a statement.
"I'll be flying home shortly to assess all the options but I appreciate all the messages of support and I hope to be back playing soon."
Australian Open's tournament director Craig Tiley said he respected what was a "very hard decision for Andy".
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Murray's withdrawal comes amid a string of injury concerns that have plagued some of the world's top players and cast doubt on their participation first Grand Slam of the year, which is due to begin in Melbourne on January 15.
Asian number one Nishikori, who has not played competitively since last August after suffering a torn tendon in his right wrist during a practice session at Cincinnati, also pulled out of the Slam earlier Thursday.
He said he intended to test the injury next week at two exhibition events in Melbourne next week, the Kooyong Classic and Tie Break Tens.