The former world number one sustained the right hip injury in 2017 and has not appeared in a competitive match since slumping to a tough five-setter defeat to American Sam Querrey in the quarter-finals at the Wimbledon.
As a result, Murray, who had enjoyed being world number one just 12 months ago, has fallen out of the top 10 to number 16 in the rankings.
Murray, however, made a tepid return to the court, losing a one-set match 6-2 to Roberto Bautista Agut in the United Arab Emirates exhibitions on Friday.
Confirming the news, Murray said he would not be playing in Melbourne this year as he is not ready to compete.
"Sadly I won't be playing in Melbourne this year, as I am not yet ready to compete. I'll be flying home shortly to assess all the options but I appreciate all the messages of support and I hope to be back playing soon", the Guardian quoted Murray as saying.
On the other hand, tournament organizer Craig Tiley said that he respected what would have been a very hard decision for Murray.
"We are fully aware that Andy has been going through a difficult period with his hip and that he's done everything possible to prepare for the Australian summer. Andy loves tennis and would do anything to play. This is a very hard decision for Andy and we totally respect it. We wish him the absolute best on his road to recovery and look forward to having him back in Melbourne. He is a true champion and one of our favourites", he said.
The 30-year-old recently also withdrew from season-opening Brisbane International due to the same injury. He was due to face Ryan Harrison in the second round of the tournament on his return.
Murray has now joined Japanese star Kei Nishikori, who has been out of competitive action since last August after suffering a wrist injury during a practice session at Cincinnati and has also pulled out of the season-opening Grand Slam.
The former world number one, who successfully defended his title last year by thrashing British tennis maestro Andy Murray in three sets, pulled out of the tournament in the wake of his continuous problems with a niggling elbow injury.
The 2018 Australian Open is slated to be held from January 15 and will run till January 28. (ANI)