"I will continue to serve Idaho in the United States Senate, and there are several reasons for that," said Craig. "As I continued to work for Idaho over the past three weeks here in the Senate, I have seen that it is possible for me to work here effectively."
Craig had earlier announced he would resign his seat by Sept. 30, but had wavered when he went to court in hopes of withdrawing his plea.
The third-term lawmaker issued his statement not long after Idaho Gov. C.L. "Butch" Otter relayed word he has selected a replacement for Craig in the event of a resignation.
"He is ready to act should we receive a letter of resignation," said Jon Hanian, Otter's spokesman in Boise, in what seemed like a calculated signal that home-state Republicans want Craig to surrender the seat he has held for 17 years.
In his statement, Craig said he will not run for a new term next year.
But in the meantime, he said: "I will continue my effort to clear my name in the Senate Ethics Committee -- something that is not possible if I am not serving in the Senate."
"Republicans worried that the episode is hurting their party's image and election chances are going to be eager to take up Craig's stated intention to resign and try to put this story behind them," said CBS News.com senior political editor Vaughn Ververs. "The fact that he now seems adamant to stay the course through the end of his term will spark some fireworks within the Senate's Republican caucus."
Earlier Thursday, a Minnesota judge rejected Sen. Craig's bid to withdraw his guilty plea in an airport sex sting, a major setback in Craig's effort to clear his name and hang on to his Senate seat.
"Because the defendant's plea was accurate, voluntary and intelligent, and because the conviction is supported by the evidence ... the Defendant's motion to withdraw his guilty plea is denied," Hennepin County Judge Charles Porter wrote.
"This decision will almost certainly lead to the end of Craig's Senate career," said Ververs. "The question now appears to be when."
Craig can appeal Porter's ruling, but it wasn't immediately clear if he would. Telephone calls and e-mails seeking comment from Craig spokesmen Sid Smith in Boise and Dan Whiting in Washington, D.C. weren't immediately returned.
When the charges first surfaced, Craig said he would resign by Sept. 30. But then he decided to attempt to re-open his legal case, and said he would stay at least until he found out whether he could withdraw his plea.
Craig has maintained his innocence and said his actions in the Minneapolis-St. Paul International Airport bathroom June 11 were misconstrued by the police officer who arrested him.
The officer said Craig had looked into his bathroom stall, and tapped his foot and moved his hand under the divider in a way that suggested he was looking for a sexual partner.
Craig denied that in an interview with the officer after his arrest. But he pleaded guilty on Aug. 8. He later said he "panicked" in entering his plea, believing that it would keep the matter quiet. The Idaho Statesman had been holding back an article on rumors about his sexuality, and Craig said in court papers that he feared the arrest would trigger the story.
Porter rejected that as a good reason to withdraw the plea. Any pressure Craig was under "was entirely perceived by the defendant and was not a result of any action by the police, the prosecutor, or the court," he said.
Minnesota law allows a plea to be withdrawn if a "manifest injustice" occurs, but leaves it to judges to define that. Porter ruled that none occurred in Craig's case.
"It is not a manifest injustice to force the defendant to be bound by his plea bargain and the waivers and admissions which he made in conjunction with the execution of that bargain," Porter wrote.
He also wrote that Craig hadn't produced any "newly discovered evidence" that would clear him.
Roll Call reported Craig's arrest and guilty plea on Aug. 27. Fellow Republican senators soon called on Craig to resign, and conservative groups, which had given him near-perfect approval ratings, abandoned him quickly. Craig had been elected to Congress from Idaho in 1980 and was in his third term in the Senate.
Within days Craig said he would resign by Sept. 30. He then changed his mind, saying he would stay in office until the legal case was finished.
Prosecutor Christopher Renz had accused Craig of "politicking and game playing" with the legal system, and argued that Craig was urged to hire an attorney and had plenty of time to think about his plea.
Patrick Hogan, a spokesman for the Metropolitan Airports Commission, said in a statement that the commission, which runs Minneapolis-St. Paul International Airport, was pleased with the decision.
"The ruling continues to hold Senator Craig accountable for his conduct," Hogan said.