Steve Goldswain and Norman Pickthall, members of Redcar and Cleveland Council cabinet, will not be allowed to seek re-election as Labour councillors.
The BBC understands they were told that they had not "demonstrated a commitment to campaigning for the Labour Party". The pair deny the allegation.
The Labour Party says it does not comment on individual selection cases.
Both councillors said they "refuted such an allegation" and that they were "extremely disappointed" by Labour North's decision.
They also described the reselection process as "unfair".
There is nothing particularly unusual about political parties deselecting councillors ahead of local elections. More often than not they do it in a bid to bring in "fresh blood".
What is significant about these de-selections though is that both councillors are members of the cabinet and therefore considered to be part of the local party's leadership team.
The leader and deputy of the Redcar Labour party wanted both councillors reinstating.
However, Labour North - the body that runs Labour in the North East - decided against doing that, raising the question: Who exactly does run the Labour Party in Redcar?
Mr Goldswain represents Eston ward, while Mr Pickthall is a councillor for Teesville.
Both were initially deselected by the Labour Party in November but had appealed against the decision.
Redcar and Cleveland council leader George Dunning had publicly backed both councillors ahead of their appeal hearing.
Mr Dunning said: "I am very disappointed by the decision taken by Labour North. Both men have been excellent Labour councillors and I felt both had excellent cases and should have been reinstated as candidates."
A Labour North spokesman said: "Next May, Labour will be putting forward an excellent team of candidates committed to serving their communities and to campaigning on local issues all year round."
Two senior Redcar Labour councillors have been deselected by the party as candidates in May's local elections.