Princess Ubolratana Rajakanya Sirivadhana Barnavadi, 67, stunned the nation when she announced on Friday she would be the sole prime ministerial candidate for the party, which is loyal to ousted ex-premier Thaksin Shinawatra, in the March election.
Her candidacy instantly threatened to upend the first national ballot since a military coup in 2014 that ousted a government loyal to Thaksin, the figure at the centre of years of political turbulence and rival street protests that have riven Thai society.
But the opposition from Ubolratana's younger brother, a constitutional monarch, is likely to lead to the Election Commission disqualifying her.
Thailand has been a constitutional monarchy since 1932 but the royal family has wielded great influence and commands the devotion of millions.
"Involvement of a high-ranking member of the royal family in politics, in whatever way, is an act that conflicts with the country's traditions, customs, and culture, and therefore considered extremely inappropriate," the king said in a statement.
The statement was issued by the palace and later read on air by a television announcer.
King Vajiralongkorn also cited a provision in the constitution that states the monarch stays above politics and maintains political neutrality.
"All royal family members adhere to the same principles ...and cannot take any political office, because it contradicts the intention of the constitution."
Friday was the last day for parties to declare candidates.
Prime Minister Prayuth Chan-ocha, who was army chief when he led the 2014 coup and now heads the ruling junta, also announced his candidacy on Friday.
The March 24 election has been viewed as a straightforward battle between Thaksin's populists and their allies, on the one hand, and the royalist-military establishment on the other.