The injury sustained by Mooy was first flagged by Huddersfield but the FFA said Mooy was desperate to feature in the Jan. 5-Feb. 1 tournament and had requested a second opinion.
The 28-year-old underwent an independent review of his knee injury under the supervision of the Socceroos' high performance coordinator Phil Coles before it was decided to allow the player to continue his rehabilitation at Huddersfield.
FK Austria Wien midfielder James Jeggo will replace Mooy in coach Graham Arnold's 23-man squad, having made 11 appearances in the Austrian top division this season.
"It is disappointing to lose Aaron for the tournament however it was important that we left no stone unturned in exploring every option to get Aaron on the pitch for Australia in the UAE," Arnold said in a statement.
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"We will remain in close contact with Aaron and Huddersfield Town during his rehabilitation and trust that he will make a successful return to action.
"We agreed Aaron would need at least another month to return to fitness. With so many games in such a short period we felt it would be best to bring in a player that is fully fit and ready to go from the outset."
Arnold believes Jeggo was unfortunate to miss out on the initial squad for the tournament and expects the player to provide defensive stability in the midfield area.
"James has thrived at club level playing in a defensive midfield role and with three attacking central midfielders already in the squad, we felt we needed someone with James' attributes to provide some depth in that area," Arnold added.
The FFA confirmed forward Mathew Leckie will join the Socceroos camp, despite suffering a hamstring injury in the second half of Hertha Berlin's 3-1 loss at Bayer Leverkusen on Saturday.
The 27-year-old will be assessed in person by Australia's medical team in the UAE.
"Having reviewed his initial assessment in Germany, there is confidence that Leckie will be able to play for the Socceroos at the tournament," the FFA added.
Australia kick off their campaign against Jordan in Group B at Al Ain on Jan. 6.
(Reporting by Hardik Vyas in Bengaluru; editing by Sudipto Ganguly)
