McFarland, previously an adviser to President Donald Trump's transition team, was originally nominated in May and again early last month after the Senate failed to consider her for the post.
She was deputy national security adviser under Michael Flynn but was removed in April by his successor, Lt. Gen. H. R. McMaster.
"I am disappointed that K.T. McFarland has withdrawn from consideration to be ambassador to Singapore," Trump said in a statement released Friday afternoon by the White House. "K.T. served my administration with distinction."
Trump blamed Democrats for the Senate's failure to act on the nomination.
"Unfortunately, some Democrats chose to play politics rather than move forward with a qualified nominee for a critically important post," Trump said.
In December, Democratic Sens. Cory Booker of New Jersey and Ben Cardin of Maryland asked Congress to further examine what McFarland knew about possible communication between the Trump campaign staff and the Russian government.
In response to written questions from Booker, McFarland testified in July that she was "not aware of any of the issues or events" related to the reported interactions Michael Flynn had with former Russian Ambassador Sergey Kislyak.
An email exchange obtained later by The New York Times seemed to contradict McFarland's testimony, revealing that she was aware of a phone call between Flynn and Kislyak.
Flynn was forced out three weeks after the president's inauguration. Flynn pleaded guilty on Dec. 1 to making false statements to the FBI about his contacts with Russia's ambassador to the U.S. and agreed to "cooperate fully, truthfully, completely and forthrightly" with the investigation looking into Russian meddling in the presidential election and whether advisers to Trump colluded with Russian agents.
"I wish K.T. the best as she uses her considerable wisdom and skill as a commentator to explain to the American people how to make American foreign policy great again," Trump said in his statement.
McFarland was a commentator on Fox News. In 2006, she unsuccessfully ran for the New York Senate seat then held by Hillary Clinton.