Liam Preece, who represents Charlemont with Grove Vale on Sandwell Council, had hoped to get the Labour nomination in the pro-Brexit hotbed after Mr Watson's shock decision to stand down.
But he confirmed today he had missed out on being shortlisted for the candidacy.
The 27-year-old, from West Bromwich, has been a councillor for eight years.
He voted Remain in the EU referendum, but hit out at the pro-EU side of the argument, saying they had "a tendency to treat those who voted Leave as stupid and racist".
"People here in West Bromwich are not racist or stupid," he said. "They had genuine concerns and fears about the economy and our country."
He says representing West Bromwich in parliament would have been "privilege of his life".
His work as a ward councillor, he added, had been his "bread and butter", but he was now ready to progress in his political career.
Speaking before the shortlisting, he said: "I am proud to be from West Bromwich, working class and British. It would be the privilege of my life if I was elected."
The father-of-two has battled against cancer in the past 12 months. He says that although it was a frightening experience, the cancer was caught early – at stage one – and he has been given the all clear.
Councillor Preece, who works at Sandwell General Hospital, said it was a "life changing" experience.
Applications for the candidacy closed yesterday, with regional office expected to announce the shortlist in the coming days.
But he tweeted today: "I'm told (indirectly) that I have failed to make the shortlist for West Bromwich East.
"No local candidates were successful. I hope whoever is selected will take the time to get to know West Brom, it's people and come to love this place as much as I do.
"West Brom represents the best of Britain, it deserves the very best MP.
"I sought this candidacy to stand up for the people who raised me and the place that made me.
"I will continue to fight with everything I have for Charlemont with Grove Vale on Sandwell Council for as long as I have the privilege to serve.
Meanwhile Labour's candidate for West Bromwich West was due to be announced today.