Nasdaq, making its second attempt to take over the LSE, offered to buy the more than 70 percent of shares it doesn't already own in a deal which values the London bourse at 2.7 billion pounds ($5.1 billion).
The offer represents a premium of 54 percent on LSE's closing share price March 10, the day before the LSE said it had received an approach, and was the minimum bid the U.S. exchange could make under British takeover rules.
"We believe Nasdaq's final offer fails to recognize the outstanding growth record and prospects of our group on a standalone basis let alone the Exchange's unique global position," said Clara Furse, chief executive of the London Stock Exchange.
New York-based Nasdaq, which accumulated 25.1 percent of LSE shares during a takeover bid earlier this year, offered 1243 pence ($23.56) per share for the outstanding stake. It then announced further purchases which raised its holding to 28.75 percent.
"This is a long game that we're playing, and I'm optimistic we'll engage with the London Stock Exchange board in a relatively short period of time," Nasdaq Chief Executive Robert Greifeld told analysts after being informed of the rejection. "As the process moves along, the likelihood we'll engage with the board increases day by day."
LSE shares traded at 12.92 pounds ($24.48) shortly after the exchanges mid-afternoon announcement.
A combination would create the world's largest equity market by value of listed companies, Nasdaq said, with more than 6,400 quoted companies with a total value of about 6.3 trillion pounds ($11.3 trillion) — a giant ready to slug it out if necessary with a new European exchange which seven major investment banks say they plan to create.
The London Stock Exchange, Europe's oldest bourse, now takes about half of the initial public offerings in Europe including many flotations of Russian and Eastern European companies.
Earlier this month, the LSE reported that first-half net profit more than doubled to 54.1 million pounds (euro80.9 million US$103.2 million), as electronic trading increased 56 percent and income from initial public offerings rose.