In the wake of the South Africa series loss and Labuschagne's run of 49 Test innings without a century, the No.3 has been axed for the four-Test domestic series against New Zealand.
Chairman of selectors George Bailey left the door open on Monday for Labuschagne to make a Test return, but said the decision was made to end conjecture about his immediate future.
Bailey added on Monday that the first Test squad would be named after this week's fourth round of the Sheffield Shield.
The fifth round will run from November 22-27, well ahead of the December 9-13 first Test in Perth. But Bailey is confident the squad will be confirmed after this week, with all the interest on Australia's underperforming batsmen.
"It probably just leaves it a little bit tight, in terms of some of the preparation and some of the other stakeholders we need to keep happy," Bailey said of leaving selection until after round five.
"We'll be really clear by that stage (end of round four), I don't think I'm disclosing too much to say we've got some thoughts around what that squad is starting to look like as it is.
"I always hate, I don't like the idea of a bat-off or a bowl-off in a one-off game, so I don't necessarily think it will move the dial an enormous amount, but it certainly still has the potential to."
Bailey said the door remains open for Labuschagne to be recalled for next year's India and Ashes tours.
"This gives him a little bit of space and clears up a bit of conjecture," Bailey said.
"It's still possible (he will return after the trans-Tasman Test series), absolutely.
"He's always been an incredible performer at first-class level. So I expect that'll be the case.
"There's no message to go back and do anything in particular, the currency is pretty obvious."
Labuschagne burst onto the scene with 10 centuries from his first 33 Tests, when he averaged 59.43 and at one stage was the world's top-ranked batter.
But a tortured tour of South Africa, where he logged scores of zero, four, 14, 39, 37 and 37, extended his miserable run.
Labuschagne was briefly dropped for last year's tour of the West Indies, but batted his way straight back into the side for the home Ashes with two centuries for Queensland in the Sheffield Shield.
The 32-year-old, once touted as a future national captain, will return to leading Queensland in the Shield as he bids to restore confidence and form.
"We all know how good and how effective Marnus can be at his best, but that performance hasn't been there," Bailey said.
"He's pragmatic, he knows that the fundamental nature of being a batter in the top six is to score runs and that just hasn't happened."
Also on Monday, Test quick Scott Boland said he definitely would not play this week and a decision was yet to be made on round five in the Shield ahead of the Perth Test.
At 37, Boland is comfortable with his place in the Test squad and wants to keep playing at the top level for as long as possible.
"I want to play every game ... I know that at 37, I'm not going to be around forever," he said.Â
"I like that I can come into a game and try to impact straight away. Pat (Cummins) chucks me the ball pretty early on, so it's nice having the confidence from him."
Boland gave a lengthy pause when asked about his omission for the third Test loss to South Africa.
"I guess I can see where they were coming from - it probably wasn't a pitch for four fast bowlers," he said.
"I get that and we definitely need some spin."
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