The 16-year-old from Royal Birkdale was beaten 2/1 in the final at Monifieth Links by the number one seed, Laura Gonzalez-Escallon from Brussels.
Afterwards Kelly, an England girl international, said: I’m disappointed but I gave it my best shot.
Laura is a very, very good player. It’s difficult to beat somebody in match-play if they don’t make mistakes … and she made only one bogey against me. And shes a phenomenal putter. I’ve never played with or against any girl who could keep holing putts like that.
In the final, the first three holes were halved in par before 17-year-old Laura stepped up a gear to birdie the long fourth and short fifth.
Kelly then showed the class that has earned her selection to the European Junior Ryder Cup team with birdies on the eighth and ninth to get on level terms.
The Belgian girl got her third birdie of the final at the short 12th to regain a one-hole lead but Kelly squared matters again with a par at the next.
However Kelly bogeyed the short 14th to again give Gonzalez-Escallon a one-hole lead. The players halved the next two but on the 17th Kelly took bogey five after driving into the left rough. Her opponent scored a solid par and claimed the title.