Venezuela, Ecuador, Bolivia, Brazil and Argentina have each criticised the deal as a plan by Washington to increase its influence over the region.
Liliana Ayalde, Washington's ambassador in Asuncion, called Lugo's decision to prevent the hosting of US troops by Paraguay "regrettable".
The US troops' would have undertaken a variety of humanitarian projects, including building schools and clinics, she said.
About 19,000 medical consultations that had been planned for remote regions of Paraguay will now be abandoned, she said.
Officials from the Paraguayan government said that Lugo's decision would not negatively affect relations with Washington.
Agreements with the United States in different sectors will not be affected, Hector Lacognata, Paraguay's foreign minister, said.
"We have an excellent bilateral agenda with the United States. We have more then 30 current agreements with the US in diverse areas, of which six are in the area of military co-operation," he said.