Mr Farage said he did not want to do anything that would distract from the party’s campaign for next month’s European elections, where he predicted Ukip would cause an “earthquake in British politics”.
He told the BBC: “I don’t want to do anything that deflects from the European election campaign, so I am not going to stand in this by-election.
“I want to focus the next three weeks on winning the European elections.”
Mr Mercer quit as the MP for Newark after facing a six-month ban from Parliament over a cash-for-questions scandal.
Mr Farage said: “It was only 12 hours ago that Patrick Mercer stood down, so I haven’t had long to think about it. But I have thought about it and we are just over three weeks away from a European election at which I think Ukip can cause an earthquake in British politics from which we can go on and not just win one parliamentary seat, but quite a lot of parliamentary seats.”
The Ukip leader said: “I don’t have any links with the East Midlands, I would just look like an opportunist and I don’t think that would work.”
But he added: “We will fight the Newark by-election and fight it damned hard and get a good local candidate.
“But we will also, over the course of the summer, be targeting two or three dozen seats for the general election next year. This party isn’t about one politician, it’s not about one man, it’s not about one by-election, it’s about a nationwide political movement.”
Mr Farage denied that his decision not to gamble on a run at the Newark seat, which Mr Mercer held for the Tories with a majority of 16,152 in 2010, revealed a lack of courage.
“I think I have shown some courage over the years. I have helped take this party from nothing into a position where last Sunday it was leading the opinion polls in a national election.
“It’s about choosing the right battles, it’s about prioritising.
“I know that if I had said yes to standing in Newark the next three weeks would be dominated by ‘am I going to win, am I not going to win’ and we wouldn’t be talking about open door immigration, EU membership, most of our laws being made somewhere else and the issues on which I want us to win the European election.”
He added that there would be “pressure and splits within the Conservative Party” after the European elections and “this may not be the last by-election that comes up between now and next May”.
On BBC Radio 4’s Today programme he added: “I’m a fighter, I’m a warrior but you have to pick your battles in life.”
• A THIRD of voters aged over 50 plan to support Ukip in next month’s European elections, with one-in-five set to maintain their support for Nigel Farage’s party in the 2015 general election.
The Populus poll of customers of insurance company Saga found 33 per cent of over-50s who say they will vote on 22 May will support Ukip, ahead of the Conservatives on 30 per cent, Labour on 17 per cent and the Liberal Democrats on 9 per cent.
In a warning to the main Westminster parties that Ukip’s support goes beyond a protest vote, 66 per cent of the over-50s backing Mr Farage’s candidates next month will also vote Ukip in 2015.