According to Indian home ministry sources based in the Tibetan refugee town of Dharamsala, the contestant, Ms Pema Chodan, is a Naik in the Indian Army. She has been asked to withdraw as she had not taken permission from the army authorities.
However, observers say the Indian government has asked her to pull out as it is wary of annoying China, which doesn't approve of the Ms Tibet contest.
"Yes Pema Chodan, 24, will not be taking part in the contest. Now only five contestants remain in the beauty pageant," Lobsang Wangyal, chief organiser and founder of the Ms Tibet event, told IANS Friday.
The three-day beauty contest is to start with a swim-suit round Friday in this Himalayan town amid rain and fog.
The controversial Ms Tibet contest has been constantly in the news ever since it began five years ago with Tibetan leaders and elders opposing it on the grounds that display of the flesh was against the traditional Buddhist way of life.
So huge has been the opposition from Tibetans that twice in the past, including last year, there was barely one contestant remaining who was crowned winner as the rest were pressurised to withdraw.
But organisers feel the event gives a platform to Tibetan women to display their skills and talent in the international arena and also highlight the disputed Tibetan cause with China.
"This year, the swim-suit event will be opened to the public for the first time," Lobsang said.
The beauty contest is to end Sunday.
Thousands of Tibetans fled Tibet along with their spiritual leader the Dalai Lama in 1959, after a failed uprising against the Chinese communist regime.