Sakshi Malik made a grand comeback as the wrestler grabbed her first gold medal after a long wait of five years at the UWW Ranking Series event.
Vinesh was knocked out 3-9 by Vanesa Kaladzinskaya of Belarus at the Makuhari Messe Hall on Thursday morning.
Sakshi Malik will compete in the 65kg freestyle event at the Asian Wrestling Championship.
It will be the first international competition that Indian wrestlers will be participating in after the nationwide lockdown was imposed in March due to the Covid-19 pandemic.
A chance to win an Olympic medal was slipping away from Malik when she was trailing 0-5 against Aisuluu Tynybekova of Kyrgyzstan in the Repechage medal playoff in Rio, but the wrestler fought back and won the bout 8-5.
As part of the explanation, the Sports Ministry said that since Sakshi was earlier conferred with India's highest sporting honour, Khel Ratna Award in 2016, she will not be awarded the Arjuna Award.
The Ministry decided against bestowing the Arjuna on Sakshi and weightlifter Mirabai Chanu as the two have already been conferred with the Rajiv Gandhi Khel Ratna Award.
This was due to the fact that they had already won the Khel Ratna, the country's highest sporting honour.
Earlier, star grappler Vinesh Phogat had pulled out of the national camp, starting from September 1 in Lucknow, citing coronavirus scare.
Sakshi became India's first woman wrestler to win an Olympic medal when she defeated reigning Asian champion Aisuluu Tynybekova of Kyrgyzstan 8-5 in the 58kg category.
Sakshi Malik has said that everyone has to try and adapt to the situation or it may lead to mental struggle.
18-year-old Sonam Malik beat Sakshi Malik, securing a berth in the Indian team for the next month's Olympic qualifiers.
Sakshi Malik lost a closely fought gold medal match in the 65kg category at the Asian Wrestling Championships here on Friday.
Bronze medallist at the 2016 Rio Olympics, Sakshi was the only Indian to get through to the title round on Friday before losing a closely fought 65kg final to Naomi Ruike of Japan.
In her semifinal against Uzbekistan's Nabira Esenbaeva, Sakshi led 5-0 but her rival pulled off consecutive two-point moves to make it 5-4.
The Rio Olympic bronze medallist was humbled by two-time Cadet World Champion Sonam Malik during the trials in the 62kg category.
Sakshi was defeated by two-time world cadet champion Sonam Malik in the 62-kg weight category in the trials for the Asian World Olympics qualifiers.
Sonam was trailing 4-6 in the second period but produced a sensational four-point throw with just three seconds left in the bout to make it 10-10 and win on criteria of scoring the last point.
Over 500 wrestlers will be vying for top honours in the men's freestyle, greco roman and women events during the championship.
Wrestling Federation of India (WFI) has hit hard on the Indian wrestlers after their performances in the recently-concluded Wrestling Championships.
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