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Pendleton, who won her fourth consecutive and fifth career sprint gold on Saturday, finished second to win the silver medal after her Lithuanian opponent took command of the race with three laps to go.
Olga Panarina of Belarus held off Australian Kaarle McCullouch to win the bronze.
But upon reviewing the race, British team bosses complained that Krupeckaite had broken the rules by coming out of her sprinters lane in the final lap, a move that could theoretically get her relegated.
But race judges rejected their appeal, a day after China lost a similar argument following their claim that Pendleton had impeded Shuang Guo in their sprint final.
Britain’s team director Dave Brailsford was not a happy man.
“Those are the rules and they didn’t have the bottle to apply the rules,” he said. “Why have the rules if you don’t apply them?”
Pendleton insisted she was happy to win silver in an event for which she had not focused much on this year, but she was still bemused by the judges’ decision.
“The decision’s been made but someone is going to have to explain it to me better later on,” said Pendleton.
While Pendleton immediately ripped off her silver medal ahead of speaking to reporters, Krupeckaite was savoring the four medals she had won during the championships.
In Copenhagen she also finished third in the sprint, third in the 500-meter time trial and third in the team sprint event.
But she admitted the keirin gold was something of a surprise.
“My plan was to go out and give it everything. It was my last chance for a gold medal here, though I didn’t really anticipate it,” said Krupeckaite, last year’s 500-meter time trial champion.
“It’s the last day of racing and I’m very tired.”
Shuang Guo, beaten by Pendleton in the sprint final, was the defending world keirin champion. However, the Chinese failed to qualify for the six-woman final.
The women’s keirin will make its Olympic debut at the London Games in 2012 where both sexes will race the same five events: sprint, team sprint, keirin, team pursuit and omnium.
And after this defeat, Pendleton said she will be doubly motivated to focus on the event.
“Next year I’m going to have to focus a bit more on getting race experience in the keirin,” added the 29-year-old Englishwoman, who tried to put a positive spin on her mixed bag of results.
Racing with Jessica Varnish, Pendleton could only finish fourth in the team sprint.
“I’ve fulfilled all my goals this week. It’s a step forward for me and I have taken a lot of confidence from my time at the championships,” she said.