Saudi Arabia, whose candidacy was also criticized, got an automatic seat and rights groups said they will now seek to put the spotlight on the kingdom's record.
Iran was beaten to an Asian seat on the executive board by East Timor, a late entrant to the contest, in a vote at the UN General Assembly. Four UN agencies were merged this year to set up UN Women under the leadership of former Chilean president Michelle Bachelet.
Iran had originally been guaranteed a place as the Asia region had put forward 10 candidates for 10 seats. Iran and Pakistan were on the agreed list.
East Timor risked the wrath of its Asian neighbors by putting itself forward as a spoiler late last week, as controversy mounted over Iran's rights record, diplomats said. It won 36 votes against 19 for Iran.
The United States, European Union, Australia and Canada carried out an intensive diplomatic campaign to thwart Iran, diplomats said.
"It was an expression of disapproval of Iran's rights record," Norway's UN ambassador Morten Wetland told AFP, explaining his country's decision to back East Timor.
"They lost and they lost handily," commented US ambassador Susan Rice on Iran's defeat.
"We have made no secret of our concern that Iran joining the board of UN Women would have been an inauspicious start to that board," she told reporters.
'Shocking system of male guardianship'
Campaigners had highlighted Iran's treatment of women, including the case of Sakineh Mohammadi-Ashtiani who was sentenced to be stoned to death for adultery. Though Iran has said this will not be carried out, reports say she could now be hanged after being found guilty of the murder of her husband.
"We are extremely relieved," said Philippe Bolopion, UN specialist for the Human Rights Watch group. "Iran has a catastrophic record on rights," he said.
"It is a country which has distinguished itself by actively repressing women's rights activists, they have harassed many and imprisoned some," he told AFP.
A resolution on Iran's human rights is to be voted at the UN General Assembly next week and is already the subject of intense new lobbying, diplomats said.
Iranian Nobel Peace Prize winner Shirin Ebadi had said before the vote that having either Iran or Saudi Arabia on the board of UN Women would "a joke".
Ebadi said that Saudi Arabia's record on women is worse than Iran.
In Saudi Arabia women are forbidden to drive and cannot take major decisions without the permission of a male relative.
It secured an automatic seat from a group of donor countries for which there was no vote.
The US ambassador said that UN Women is "a vitally important institution", and questioned about the Saudi presence she added: "I am not going to deny that there were several countries that are going to join the board of UN Women that have less than stellar records on women's rights and indeed human rights."
The HRW specialist said that Saudi Arabia had "bought" a seat on the UN Women board.
"They have one of the worst records in the world when it comes to women's rights. But by being on the board they have essentially put the spotlight on their own record," said Bolopion.
"We want to use this spotlight to push them to start making some significant progress. By working to put an end to the shocking system of male guardianship, by which women in Saudi Arabia cannot make any important decisions in their lives," he said.
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