Todd Russell, who had represented Labrador for six years before losing to Penashue by just 79 votes, says he still feels bitter over the last election, but said his priority is to serve as president of NunatuKavut, the organization that represents Labrador's Inuit Métis.
"I believe in my heart that I lost unfairly, that I was cheated, that in fact the people of Labrador were cheated out of a fair election," Russell told CBC Radio's Labrador Morning.
"That's what makes this decision so difficult …. At the end of the day, I had to put aside some of the hurt, some of the anger, some of the disappointment."
Penashue, who resigned his Commons seat earlier this month amid revelations his 2011 campaign had repeatedly accepted inappropriate donations, will stand for the Tories in the byelection.
Russell's decision is the latest twist in the still-unofficial competition for the Labrador seat, and comes on the heels of Green Party Leader Elizabeth May's call for the NDP to stand down in the race so that the Conservatives will be defeated.
Russell had a good motivation to run again, if only because he was defeated just 22 days before he was eligible to qualify for a parliamentary pension.
Meanwhile, Russell took a shot at Yvonne Jones, a Liberal representative in Newfoundland and Labrador's legislature and a former provincial party leader. Jones declared her intention to seek the Liberal nomination the morning after Penashue announced his resignation in the house.
"I was disappointed that Ms. Jones made such a hasty decision," Russell said. "I would have hoped that I would have had the liberty, the freedom to make my decision without that added consideration."
Meanwhile, the NDP proceeded Sunday with a nomination vote, despite a call from the Greens to cancel it.
Harry Borlase, an analyst with C-CORE, a research organization working on cold-ocean development, won the race for the NDP's nomination on Sunday.
May asked the NDP to not nominate a candidate for the as-yet-uncalled byelection, on grounds that a concerted opposition could prevent a Conservative from winning. May is hoping that Opposition parties can collaborate from now on to ensure a system more in line with proportional representation.
Penashue was the first Tory since 1968 to win an election in Labrador. Since Confederation, the riding has otherwise been represented by Liberals.
Prime Minister Stephen Harper, who has staunchly defended Penashue's record, is free to set a date for the election as early as Friday.
The NDP brushed aside May's call and proceeded Sunday with an online ballot that drew 106 votes among three candidates.
The party did not release a vote count.
"The NDP is the party best positioned to defeat and replace and Stephen Harper in 2015 and we can start right here in Labrador by punishing Peter Penashue and Stephen Harper for their ethical lapses," Nathan Rotman, the NDP's national director, said in a statement Sunday night.