Azoulay now faces Qatar's Hamad bin Abdulaziz al-Kawari in a final vote scheduled for Friday evening.
China had nominated Qian, who has been serving as assistant director general of UNESCO since April 2010, to be the agency's head, but chose to withdraw after the latest round of voting yesterday, Hong Kong-based South China Morning Post reported.
The victor will succeed outgoing Director-General Irina Bokova, whose eight-year term was marred by financial woes and criticism over Palestine's inclusion as a member.
The victor must be approved by UNESCO's 195 member states in November, though this is seen as a formality.
Khattab was competing for votes from UNESCO's executive board against France's Audrey Azoulay, for a place in the final run-off vote against Qatari candidate Hamad Bin Abdulaziz Al-Kawari.
Arab countries have complained that UNESCO has never had a boss from their region.
The election of UNESCO's new chief has been narrowed down to two candidates, one from Qatar and the other from France.
Both countries suspended their funding to the agency - best-known for its prestigious World Heritage List - over the move, and on Thursday announced that they would withdraw from the organization.
The agency's inclusion of Palestine as a member state in 2011 complicated this push, as did Qatar's diplomatic dispute with Arab neighbors over accusations of sponsoring Islamic extremism.
Declining to reveal why China withdrew its candidate Qian Tang, foreign ministry spokesperson Hua Chunying told a media briefing here that China backs UNESCO in selecting a director general qualified according to the United Nations body's rules and regulations and meets the expectations of all its members.
In addition, the UNESCO vote comes as Egypt and three other Arab nations continue a months-long boycott of Qatar over allegations that the government funds extremists and has overly warm ties to Iran.
UNESCO's general assembly will have to sign off on the board's pick.