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.
HSBC has announced it is to close its branch in Market Rasen in December due to falling numbers of people using it.