The match was scheduled for March 15 in Vienna as part of preparation for the 2018 World Cup.
Libyan Football Federation president Jamal Al-Jaafari has said they will not play Team Melli because the foreign-based players have not been allowed to join Libya national team since the match will not be played in FIFA Matchday.
Iran had selected Libya because the African team has the same style of football as that of Morocco.
Team Melli has been drawn along with one-time World Cup champion Spain, UEFA titleholder Portugal and Morocco in Group B.
Carlos Queiroz’s men will kick off the competition with a match against Morocco on June 15.