Republican presidential front-runner Mitt Romney said the decision was "as shocking as it is revealing. It shows a president who once again has put politics ahead of sound policy."
Project supporters say U.S. rejection of the pipeline would not stop it from being built. Canadian Prime Minister Stephen Harper has said Canada is serious about building a pipeline to its West Coast, where oil could be shipped to China and other Asian markets.
Harper on Wednesday told Obama he was profoundly disappointed that Obama turned down the pipeline, Harper's office said.
Alex Pourbaix, TransCanada's president for energy and oil pipelines, said last week the company soon will have a new route through Nebraska "that everyone agrees on."
The pipeline is a dicey proposition for Obama, who enjoyed strong support from both organized labor and environmentalists in his winning 2008 campaign for the White House.
Environmental advocates have made it clear that approval of the pipeline would dampen their enthusiasm for Obama in the upcoming November election. Some liberal donors even threatened to cut off funds to Obama's re-election campaign to protest the project, which opponents say would transport "dirty oil" that requires huge amounts of energy to extract.