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Rutile (R) phase VO₂ is a quintessential example of a strongly correlated bad-metal, which undergoes a metal-insulator transition (MIT) concomitant with a structural transition to a V-V dimerized monoclinic (M) phase below T_MIT∼ 340K. In particular, doping vanadia thin-films with oxygen vacancies (V_O) has been shown to completely suppress this MIT without any structural transition[1]. We explain this suppression by elucidating the influence of oxygen-vacancies on the electronic-structure of the R phase VO₂, explicitly treating strong electron-electron correlations using dynamical mean-field theory (DMFT) as well as diffusion Monte Carlo (DMC) techniques. We show that V_O’s tend to change the V-3d filling away from its nominal half-filled value, with the e^π_g orbitals competing with the otherwise dominant a_1g orbital. Loss of this near orbital polarization is associated with a weakening of electron correlations, which removes a charge-density wave (CDW) instability along the V-V dimerization direction above a critical doping concentration, thereby suppressing the metal-insulator transition. Our study also suggests that MIT is predominantly driven by a correlation-induced CDW instability. [1] Phys. Rev. Applied 7, 034008 (2017).