Spells from young fast bowler Tayla Vlaeminck and Sophie Molineux has led Australia to victory against England at the Junction Oval on Sunday.
England had to register a score of 124 to reach the finals, but Australia restricted them to a lower score.
As a result, India have now qualified to the finals on the basis of net run rate.
The host will now face India in the finals of the T20 tri-series on February 12.
Australia had posted a below-par 7-132 and to progress to the finals, they need to give their all.
Australia did not get off to a good start as they lost two wickets with just 16 runs on the board.
Alyssa Healy (1) and Ashleigh Gardner (10) both failed. Beth Mooney and Meg Lanning kept the innings alive as they stitched 38 runs partnership, but Lanning's (12) innings was ended by Sarah Gleen in the 10th over leaving Australia at 54/3.
All-rounder Ellyse Perry (10) also could not help much. However, Mooney along with Rachael Haynes took Australia's total past the 130 mark.
Now chasing 133, England lost its opening wicket with just 21 runs on the board. Danni Wyatt (11) were sent back to the pavilion by Vlaeminck in the fourth over.
Amy Jones (9), Natalie Sciver (16), Heather Knight (13), Fran Wilson (2), and Tammy Beaumont (6) all fell like a pack of cards as England were reduced to 70/6 in the 13th over.
By the end, it was too much for England as they could not make it and lost the match by 16 runs.