"I refuse to sign it and am sending the legislation back to parliament for reassessment," Duda said on public television.
"The amendment would have caused a large part of the population to not have representation in the European Parliament."
The president said it would have fundamentally limited access to the EU parliament, discouraged Poles from turning out to vote, and forced small parties into entering coalitions.
Many opposition parties celebrated the veto while the governing conservative Law and Justice (PiS) party that introduced the legislation announced it would no longer pursue it.
"We respect the president's decision, though we maintain our opinion" that a strong party representation at the European Parliament would be preferable to that of several small groups, said PiS spokeswoman Beata Mazurek.
"We will no longer work on making changes to the voting system," she added on Twitter.
The legislation had passed parliament last month and only needed Duda's signature to enter into force.
The PiS, which has been in power since late 2015, said the change would have simplified the complex system currently in place and help boost representation from less populated areas.
However opposition parties accused the PiS of introducing the new rules so as to increase its share of European Parliament lawmakers in the elections next year.
In Poland, European Parliament lawmakers are elected by direct popular vote.
According to experts in the Polish senate, the controversial change would have made it necessary for parties to win 16.5 percent of the vote to ensure representation in the European Parliament.
In comparison, the threshold set by European law is five percent.
Only two Polish parties -- the PiS and the liberal Civic Platform (PO) opposition party -- would have been certain to reach the 16.5 percent threshold.
On Monday, Duda held talks with the leaders of several other political parties, including the Kukiz'15 anti-establishment movement, the PSL farmers' party, the leftist extra-parliamentary party Razem and the small Catholic party Right Wing of the Republic.
Duda had first used his veto last year to oppose certain reforms to the judiciary, though he later accepted the legislation with modifications considered minor by the opposition.
Poland's powerful Catholic Church and human rights commissioner Adam Bodnar had also criticised the planned changes.
According to recent opinion surveys, the PiS is on track to win 40 percent of the vote in the European Parliament elections next year, while the PO would take 26 percent.
Nine percent would go to the leftist SLD party, eight percent to Kukiz'15, five percent to the liberal Nowoczesna party, five percent to PSL and three percent to Razem.
The European Parliament elections are scheduled for May 2019, just a few months before national polls in Poland.
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