Kay's single, taken from his Channel 4 comedy 'Britain's got the Pop Factor ... and Possibly a New Celebrity Jesus Christ Soapstar Superstar Strictly on Ice', charted at number two while Jackson's ballad, 'Don't Call this Love', came in third.
They were both beaten to the top spot by US singer Pink who spent a third consecutive week at number one with 'So What'.
Kay performs 'The Winner's Song' as his show's character Geraldine McQueen, an overweight transsexual from Northern Ireland.
The single was co-written by Take That's Gary Barlow and includes the lyrics "I started with nothing. Now I have something. I proved them all they were wrong".
In the Channel 4 programme McQueen impressed Sir Paul McCartney, her mentor, with a rendition of the 'Home and Away' theme tune and was praised by the judges for a medley including Rihanna's 'Umbrella'.
McQueen was gracious in her victory over Jackson insisting: "Leon is a lovely wee boy, he's a Scottish Michael Buble. There's enough room for everyone."
Kay has previously had two number one hits for Comic Relief with 'Is this the way to Amarillo', featuring Tony Christie, and a cover of The Proclaimers' '(I'm Gonna Be) 500 Miles'.
His show 'Britain's Got the Pop Factor' was Channel 4's highest rating programme of the year with 5.5m viewers tuning in, a 20.2% share of the 8pm-9.15pm audience. Including Channel 4+1 figures, it reached 6.1m viewers.
Jackson sold 5,000 fewer copies than Kay despite having the advantage of performing his single in front of an 'X Factor' audience of 10m viewers last week.
Earlier this month he launched 'Leon's Life', an online TV show on Bebo giving an insight into his life since winning 'X Factor'.
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