Defense Secretary Chuck Hagel said the cancellation was part of an overall restructuring of missile defense plans aimed at stopping missiles from North Korea and Iran.
He made no reference to Russia's objections to the European plans, but said that other parts of program in Europe would move forward and that the U.S. commitment to missile defense in the region "remains ironclad."
The restructuring includes spending $1 billion to add the 14 new interceptors to the 26 that are in underground silos in Alaska.
The shift in U.S. missile defense plans in Europe is the second major change to the program since President Barack Obama has been in the White House. It could cause unease among some U.S. allies, including Poland and Romania, who see the system as a sign of U.S. engagement in the region and a counterweight to Russia.
Missile defense has been a contentious issue since President George W. Bush sought to base long-range interceptors in Central Europe to stop Iranian missiles from reaching the U.S. Russia believed the program was aimed at countering its own missiles and undermining its nuclear deterrent.
Obama reworked the Bush administration's plan soon after taking office in 2009. He canceled an earlier interceptor planned for Poland and radar in the Czech Republic, replacing the high-speed interceptors with slower ones that could stop Iran's medium-range missiles.
Under Obama's plan, the interceptors were to be upgraded gradually over four phases, culminating early next decade with those intended to protect both Europe and the United States.
Russia initially welcomed the changes to the Bush plan, and relations between the two powers improved. That, in turn, paved the way for the New START treaty setting new limits on both countries' nuclear arsenals.
But Moscow has ramped up its criticism of Obama's revisions, which are backed by NATO, and claims the fourth and last planned upgrade of the interceptors would be able to stop its intercontinental missiles launched at the U.S. and undermine Russia's nuclear deterrent.
Whether or not it was intended to, the decision to cancel plans for the long-range interceptors will help the president's arms control goals.
A senior State Department official, speaking on condition of anonymity because of diplomatic sensitivities, said that Poland and Romania were informed of the decision ahead of the announcement, but that Russia was not.
"Canceling Phase 4 opens the door to another round of U.S.-Russian nuclear arms reductions," said Tom Collina, research director at the Arms Control Association. "We give up nothing since Phase 4 was not panning out anyway. This is a win-win for the United States. "
The issue is particularly sensitive because Obama was overheard whispering in an open microphone last year telling then-Russian President Dmitry Medvedev at an international summit that he would have more flexibility on resolving their differences over the missile defense program after his re-election in November. The comment suggested that he might change the plans in Europe.
Friday's decision was criticized by Republicans in Congress who have charged that Obama has undermined allies while pursuing his goals to drastically cut nuclear weapons.
"President Obama's reverse course decision will cost the American taxpayer more money and upset our allies," said GOP Rep. Mike Rogers of Alabama, who heads the House Armed Services subcommittee that oversees U.S. missile defense programs.
Hagel said the U.S. remains committed to all the other parts of the plan, including the first three phases. He said the decision was prompted by the need to address faster-than-anticipated progress by North Korea on nuclear weapons and missiles. The changes free up the money to do so, he said.
Hagel cited North Korea's December rocket launch that put a satellite into space and showed mastery of some of the technologies needed to produce a long-range nuclear missile.
He noted that last April, the North Koreans publicly displayed a road-mobile intercontinental ballistic missile, the KN-08. Navy Adm. James Winnefeld Jr., vice chairman of the Joint Chiefs of Staff, said that missile is believed to be capable of reaching the U.S.
The missile defense system was first fielded by the Bush administration in late 2004. It has a spotty test record and has never been used in actual combat. In addition to the 26 interceptors in Alaska, the system includes four interceptors in California.
Hagel said the 14 additional interceptors should be in place in Alaska by September 2017, but not before they have been tested adequately. The European-based interceptors would not have protected the United States from North Korea.
Hagel also noted that the canceled long-range interceptors in Europe had already faced delays because of congressional budget cuts and that there were technical challenges. A slew of recent reports by congressional and defense analysts suggested the interceptors might not work.