Parvin Ahmadinejad, running in her family's hometown of Garmsar, was defeated by a conservative rival in Friday's elections for the Majlis, Iran's parliament, the country's news outlets said Saturday.
More than 64 percent of eligible voters streamed to the polls in large numbers, and election officials praised the exercise, in which about 3,400 candidates vied for Majlis seats.
It's first time Iranians are voting since allegations of rigging in the 2009 elections triggered mass street protests against President Ahmadinejad's re-election.
Many observers say the underlying issue of the election is whether voters back the president, who has been in a rivalry with Iranian Supreme Leader Ayatollah Ali Khamenei.
Khamenei publicly supported Ahmadinejad's controversial re-election victory during the dispute over the 2009 ballot results. But tensions have flared between the two leaders over the past year, with Ahmadinejad disappearing from public view for 11 days after the supreme leader overruled his decision to fire an intelligence minister.
Several of Ahmadinejad's top political allies have also been subjected to lawsuits and investigations. But in the run-up to this week's vote, the supreme leader urged factions to overcome previous divisions and repeatedly called for unity.
The current Majlis speaker, Ali Larijani, and Alaeddin Boroujerdi, the current chairman of the Majlis National Security and Foreign Policy Committee, were re-elected, state media said.
Conservatives backing Khamenei or with links to him performed well in the race.
One candidate, Gholam Ali Haddad Adel, was overwhelmingly leading his race. His daughter is married to Khamenei's son.
But one observer suggested the defeat of the president's sister could be a sign of political fraud.
"In Iran, locals are usually fiercely loyal to high ranking representatives from their area, even if they are unpopular at national level," said Meir Javedanfar, an Israeli-Iranian Middle East analyst.
"Although Ahmadinejad is not a popular politician, the very fact that his sister was defeated in Garmsar is a valid possible sign of fraud. This is likely to lead to even more infighting."
Solat Mortazavi, the deputy Interior minister overseeing the elections, praised the polling.
"These have been the most lawful elections," he said. "The elections were conducted in the best possible way."
Mortazavi said it was the first time Iran successfully used computerized voting systems in some polling stations. Final results might be released in a matter of days. He said flooding delayed the retrieval of ballot boxes from remote communities.
During the post-election crackdown three years ago, security forces used deadly force to crack down on the opposition Green Movement and presidential candidates Mir Hossein Moussavi and Mehdi Karrubi were placed under house arrest, where they remain.
There were no candidates from the Green Movement in this year's parliamentary election. Iranian political analysts describe the vote as a contest between rival conservative factions within the government.
The predominantly Shiite nation faces an escalating international outcry and Western sanctions over its nuclear program, prompting leaders to call for a higher voter turnout to establish legitimacy.