He admitted the system had cost them two council seats in Clare in the 2009 local elections.
Michael Begley from Clonlara, a former Fianna Fáil councillor, and PJ Ryan from Sixmilebridge failed to get a party nomination in the last local elections after going through the interview process.
The two subsequently won seats as independents in the Killaloe and Shannon areas respectively.
The election of Mr Begley and Mr Ryan, combined with the loss of four seats by Fianna Fáil, dramatically altered the political balance in Clare County Council.
If they had remained in the fold, Fianna Fáil would have secured 13 seats and would have remained as the biggest party.
Instead, Fianna Fáil with 11 seats (-4), lost out to Fine Gael, which won 12 (+2), with seven Independents (+2) as well as one Labour Party and one Green Party member.
Announcing a radical overhaul of its party structure and future election strategy, Mr Martin has confirmed the party will revert back to a selection convention to choose the majority of its candidates to contest the 2014 local elections.
The Fianna Fáil leader said Shannon and Ennis were areas where the party needed to significantly increase its political presence on local authorities.
“The interview system which existed irked a lot of members and provoked a lot of anger. It was regrettable that these two councillors (Begley and Ryan) didn’t make it through the selection convention. That was a loss to the party, they are very good councillors. It is a great pity that happened and I regret that,” he said.
The two councillors, who have pledged not to re-join Fianna Fáil in the near future, have criticised the interview system.
Cllr Begley recalled that he was supposed to be interviewed at 9.30pm in September 2008, was called an hour later and the first thing the interviewers said was “we will keep this as short as possible as we have been here all day”.
The Clonlara man said he felt the interviewers had their minds made up before they interviewed him and described it as a waste of time for someone who served on two councils.
Cllr Ryan recalled he was interviewed 30 minutes after Cllr Begley for what proved to be “pointless exercise”.
“I felt those doing the interview knew everything about me already,” he said.