The national broadcaster NHK said the decision to abort the launch was made after an unspecified problem developed with the rocket.
"We are still investigating the cause," said a spokeswoman for the Japan Aerospace Exploration Agency from the tiny island of Tanegashima, 1000km south of Tokyo, where Japan's launch centre is located.
The satellites were to be used to watch secretive neighbour North Korea, which is believed to be developing nuclear weapons.
Unspecified technical problems had twice postponed the launch, originally scheduled for September. A third delay was due to problems with the H-2A rocket.
This major launch failure, third in a row, is likely to severely damage confidence in Japan's space programme after a series of successes. The programme suffered two successive - and expensive - launch failures in 1998 and 1999.
The destruction of the rocket is also a major embarrassment for Japan as it came just weeks after neighbouring China put a man in space.
Japan launched its first spy satellites last March which gave it the first independent means of scrutinising North Korea from space at a time of growing crisis on the Korean peninsula over the reclusive communist state's nuclear ambitions.
The satellite deployment was planned after Pyongyang's 1998 test-firing of a Taepodong ballistic missile, which passed over Japan - demonstrating that major population areas, including Tokyo, were within the missile's estimated 1000km range.