The 33-year-old, who is now working in Germany, lost his job with the Jersey Table Tennis Association last year due to funding cuts and has been replaced by Chris Morshead for the tournament in June.
A former Scotland international, Gascoyne won seven medals at previous Games but was overlooked for Jersey 2015. He was only recalled into the team for Gotland in January.
'Jersey has to play by the rules. Craig is well known in table tennis and if we let him go and someone finds out that he is ineligible then we'd be in trouble.'
More in Tuesday's JEP.