"I am not contesting from Rae Bareli. I never agreed to nor do I now ... I've been denying this for the last two months," Ilmi wrote on social networking site Twitter.
There was buzz in the party that Ilmi will be fielded against Gandhi from Rae Bareli after another AAP leader Kumar Vishwas was fielded against Congress Vice President Rahul Gandhi from Amethi.
Sources said the party was keen on Ilmi taking on Sonia.
Ilmi has expressed her desire to contest either from Farrukhabad, a seat represented by Union Minister Salman Khurshid, or any seat from Delhi.
A section of party leaders were also of an opinion that Ilmi, who undertakes fund raising campaigns, should be made to campaign instead of pitting her against Gandhi.
Ilmi had also contested from RK Puram constituency in Delhi assembly elections, but lost to a BJP candidate by a slender margin.
Image: AAP leader Shazia Ilmi