It came amid a wider row over political betting with the Tories suspending two of their own candidates - including a close aide of ex-PM Rishi Sunak - after they allegedly bet on the date of the election.
A police officer in Mr Sunak's close protection team was also suspended over alleged bets about the timing of the 4 July poll, which was called sooner that most had been expecting.
Mr Craig went on to lose to the Conservatives in Central Suffolk and North Ipswich by more than 4,000 votes as Patrick Spencer was elected to the House of Commons.
The Gambling Commission investigated Mr Craig's bet and took no further action. He is now campaigning for the introduction of stricter rules on election gambling.
He has written to the Prime Minister to urge him to change the law to criminalise betting by anyone involved in politics - including candidates, party advisers, and police close protection officers - on election dates or outcomes.
Mr Craig has written to No10 with a draft Bill to amend the Representation of the People Act 1983.
He told The Times: 'I'm somebody that grew up where it was very normal for people in my family, and me once I was 18, to have a flutter on football, or the greyhounds, or anything.
'A bit like a football match, I made the bet [on the election result] to lessen the pain in case of defeat. It wasn't illegal, but it wasn't very wise.'
Mr Craig said a ban on politicians placing bets on elections would be a 'constructive addition to the updating of standards in public life that the PM is at some point going to look at again'.
He added: 'I of course wish I'd never placed any bet on the election. And I will be regretful and sorry about that for many years.
'I am more sorry for the people it impacted in the local Labour Party and voters who felt they couldn't vote for me. I don't in any way seek to evade my responsibility in the whole affair.'
It was reported Mr Craig placed a bet of £812.50 for the Conservatives to win the seat he was contesting. With odds of 1.62, it would have given him a £501.54 profit.
A statement from Mr Craig's lawyer said: 'Kevin Craig acted lawfully in placing a bet on the outcome of the election in the Central Suffolk and North Ipswich Constituency, in which he was standing as the prospective Labour MP.
'The Gambling Commission have investigated the matter and are taking no further action. This is a complete and total exoneration, with absolutely no evidence whatsoever that Mr Craig acted improperly.
'There is currently nothing to prevent a politician placing a bet on the outcome of an election. The legal obligation is that a bet is not placed with inside information.
'Mr Craig had no inside information and had no way of knowing who would win the election.'
The statement added: 'If anyone had looked at Mr Craig's confidential gambling records, they would have seen frequent bets being placed on all sorts of outcomes and events.
'It should have been clear to all involved that he was just someone who liked a bet, just like millions of others of people in the UK.
'It is widely recognised that some people place bets against the result they wish to happen, for example, betting against their football team. Such behaviour helps cushion the disappointment of a loss.
'We trust that everyone will accept that Kevin Craig's exoneration and see him as the diligent, decent and honest man that he is. He has been badly treated.
'He will now promote a Bill banning politicians from gambling on elections in order that there is clarity and other do not have to endure the same fate.'
The Gambling Commission said: 'As an independent regulator, where the Commission becomes aware of potential offences under the Gambling Act it will take appropriate action.
'The Commission has powers to investigate and prosecute offences under the Gambling Act 2005.
'The Commission will always be guided by its statutory duties and pursue those without fear or favour regardless of any public commentary.'
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