County Hall was hoping to secure the investment to improve routes and make travel cheaper for younger people who are studying or who use buses to get to work.
The news comes after Centrebus axed the Melton-Nottingham bus service earlier this month because it was no longer commercially viable and Leicestershire and Nottinghamshire County Councils were unable to subsidise it to keep it going.
Cllr Ozzy O’Shea, cabinet member for highways and transport at County Hall, said: “We’re really disappointed that Leicestershire has again been overlooked in a bid for government transport funding.
"We do play very much a supporting role with public transport as more than 90 per cent of services are run by the commercial sector, but any funding we can get to support the network is welcome.
“We thought our bid was a very strong one in helping communities, particularly in rural areas, as a fully-funded plan would have allowed us, among other things, to introduce a discounted fare offer for all 19-25-year-olds as a way of getting them to education and work.”
He added: “We’re not taking this lying down and have already raised this with local MPs and asked the Department of Transport to explain why our bid was turned down. Once, we get that feedback, we’ll consider our next move.
“We can take some consolation that we’re far from being alone in being turned down – we’re aware that just over 30 of the near 80 BSIP bids by councils were funded as the demand considerably outstripped the pot of money available.”