In a vote Thursday by the full Senate Democrats were unable to overcome Republican threats of a filibuster.
Obama nominated Liu to a seat on the San Francisco-based 9th Circuit Court of Appeals.
The 40-year-old son of Taiwanese immigrants supports same-sex marriage and affirmative action. He has also slammed conservative Supreme Court justices John Roberts and Samuel Alito. That has polarized both sides.
The White House issued a statement Thursday calling the vote a "lost opportunity."
Sen. Barbara Boxer, D-Calif., said she believes the ramifications will be "deeply felt in California."
