The vote was 55-45 in favour of stripping commanders of that authority, but that was short of the 60 necessary to move ahead on the legislation sponsored by Sen Kirsten Gillibrand.
It would have given the decision to take serious crimes to courts-martial to seasoned military trial lawyers, independent of the chain of command.
The debate and vote yesterday was the culmination of a nearly yearlong campaign to curb sexual assault in the ranks, led by female senators who have questioned whether the military's mostly male leadership understands differences between relatively minor sexual offences and serious crimes that deserve swift and decisive justice.
"We can't let the commanders walk away," insisted Sen Claire McCaskill, who bemoaned the tenor of a policy debate that pitted her against fellow Democrat Gillibrand.
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Backers of the measure insisted that piecemeal reforms have had only a limited impact on a problem that even the military has called an epidemic.
Survey results have suggested that some 26,000 women may have been sexually assaulted in the most recent accounting with thousands unwilling to come forward for fear of inaction or retribution.
Conservative Sens Ted Cruz and Rand Paul, both possible Republican presidential candidates in 2016, backed her effort, while the chairman of the Armed Services Committee, Democratic Sen Carl Levin, opposed it. Including Gillibrand, the bill had the support of 17 of the Senate's 20 women.
The rejection was unlikely to be the final word on the issue. Gillibrand is expected to pursue it this spring when the Armed Services Committee begins work on a sweeping defence policy bill for the 2015 fiscal year.
"The current system is failing the men and women in uniform," said one of the Senate's newest members, John Walsh, a Democrat who is the first Iraq War veteran in the body. "We have moved too slowly.