"Luka (Milivojevic) is no longer ready to play for Serbia because we have failed to come to terms and put certain issues behind us," Krstajic told a news conference on Friday.
"Serbia is bigger than either Milivojevic or myself and our priority is to create a good atmosphere for what lies ahead."
Krstajic and Milivojevic fell out after the midfielder criticised the coach's tactics and team selection in a 2-1 defeat by Switzerland, in their second group stage match at the World Cup in Russia.
With the score 1-1 in the closing stages of their Group E fixture, Krstajic threw on winger Nemanja Radonjic for Milivojevic and the move backfired as the Swiss scored a stoppage-time winner.
The outcome left Serbia facing the daunting task of beating Brazil in their final match while hoping that the result of the Switzerland v Costa Rica match would go their way in order to reach the knockout stages.
The Serbians were beaten 2-0 by Brazil and Milivojevic publicly slated Krstajic for substituting him and not settling for a draw against the Swiss.
Assistant coach Milan Obradovic then accused Milivojevic of plotting a "coup" against the staff during the tournament and the Palace captain was subsequently left out of Serbia's Nations League campaign, having denied their allegations.
Krstajic and his assistants said they met with Milivojevic in London last month in a bid to resolve the conflict but the midfielder was adamant he would not apologise for his remarks.
"We failed to find common ground despite the fact that both parties said they only wanted what's best for Serbia," said Krstajic after naming his squad for a Euro 2020 qualifier against Portugal on March 25 and the friendly against Germany in Wolfsburg on March 20.
"It's no longer open for discussion."
Serbia open their Euro 2020 qualifying campaign in Portugal in Group B, which also includes Ukraine, Lithuania and Luxembourg.
(Writing by Zoran Milosavljevic; Editing by Toby Davis)
