Mr Odinga said his withdrawal would give the electoral commission enough time to introduce reforms that will help deliver a more credible election.
The Supreme Court annulled the result of the original 8 August poll after finding irregularities and declaring it “neither transparent or verifiable”.
The electoral commission had declared incumbent Uhuru Kenyatta the winner.
It said Mr Kenyatta had won by a margin of 1.4 million votes.
The re-run was due to take place on 26 October, but Mr Odinga said: “After deliberating on our position in respect of the upcoming election, considering the interests of the people of Kenya, the region and the world at large, we believe that all will be best served by the party vacating its presidential candidature in the election scheduled for 26 October 2017.”
Due to the rules, the party said in its statement, the election would have to be cancelled – a provision which “gives adequate time to undertake the reforms necessary to conduct an election that is in strict conformity with the constitution, the relevant laws and the constitution”.
The government has previously said the election will be held as usual and the president will be sworn in.
Mr Odinga has also called on people to protest on Wednesday, using the slogan “no reform, no elections”.
In September, Kenya’s director of public prosecutions, Keriako Tobiko, asked the police and anti-corruption agency to investigate whether any electoral or criminal offences had been committed by members of the electoral commission.
He asked investigators to examine allegations that two senior opposition officials had gained illegal access to the commission’s servers.
Although no individual had been blamed, he added, this did not prevent the court from ordering an investigation.-bbc