It comes three weeks after NatWest closed its premises in the town.
Local Conservative MP Edward Leigh said he was disappointed with the news, but warned residents they needed to support local banks and shops, or lose them.
A spokesman for HSBC said it had not taken the decision lightly, and understood it was unsettling for the local community.
He said: "Unfortunately, with an increase in the use of online and telephone banking over the past few years the use of the Market Rasen branch has fallen significantly, and we've taken the difficult decision to close it.
"We are working with customers who use the branch to help them understand their options."
In June, HSBC announced plans to shed 8,000 jobs in the UK to reduce costs.
In 2012, Market Rasen was one of 12 towns to share Â£1.2m from the government as part of the Portas Pilot project, which aimed to rejuvenate UK High Streets.
In the year that followed the town saw an increase in empty stores.
Money from the scheme was used to revamp the market place and erect free parking signs on the outskirts of the town to attract passing trade.
But, Lincolnshire County Council ordered the signs be taken down as they did not comply with national requirements.
Mr Leigh said although the pilot scheme was a "valiant effort", market towns were struggling to compete for business.
"At the end of the day, you can't keep the market place if people can't make a go of their businesses," he said.

The RNLI said it expects the Shannon class all-weather lifeboat to help save more lives in waters around Ilfracombe, north Devon.
It is one of only two places in the region to get the upgraded model, which volunteers described as "faster and safer than its predecessor".
The new boat, called The Barry and Peggy High Foundation, also has a faster launching and recovery system.
It replaces Mersey class vessel Spirit of Derbyshire, which has performed more than 500 rescues over 25 years.
Suzy Tubby, an RNLI volunteer based in Ilfracombe, said the new lifeboat was an "incredible thing".
"It does 25 knots compared to the Mersey's 17," she said.
"The launching system is all very much quicker - then recovery takes less than half the time so it means we can be ready to go again a lot quicker" she said.
Second Coxswain Carl Perrin said he wanted to thank fundraisers for their help in bringing the new boat into action.
"It's faster, it's safer, it can go further and the potential for lifesaving is great," he said.

The pair, aged 24 and 27, were attacked by a group wearing hooded tops, who had covered their faces, on Drumilaw Way in Rutherglen at about 02:45 on Sunday.
The victims were taken to the Queen Elizabeth University Hospital.
Police said the incident was visible from nearby houses and have appealed for witnesses to come forward.
They said the men were approached by five or six male youths at the grass area opposite the Usave store.
Det Con Ross Philip said: "There are a lot of houses that overlook the grass area and roadway at Drumilaw Way and I'd like to speak to anyone who may have been disturbed by noise at this time of night and may have looked out and witnessed the two men being attacked."
Hospital staff said the men's injuries were not thought to be life threatening.
HSBC has announced it is to close its branch in Market Rasen in December due to falling numbers of people using it.
[NEXT_CONCEPT]
An upgraded £3m lifeboat has been launched in the south west.
[NEXT_CONCEPT]
Two men are in a serious condition in hospital after being assaulted in a large-scale disturbance in South Lanarkshire.