"The birthday party was suddenly considered as a royal ploy to taste the political clout of the king. Hence, rejection," it said.
The US embassy spokeswoman said the ambassador would not be attending because "we saw no useful purpose".
"The future of the monarchy is for the people of Nepal to decide," Sharon Hudson-Dean said, signalling that Washington - previously seen as being supportive of the king - is no longer willing to stick its neck out for him.
The fate of King Gyanendra and his 238-year-old Shah dynasty is to be decided in the outcome of crucial polls planned for November, when the country will elect a body that will rewrite the constitution.
Girija Prasad Koirala, the elderly prime minister, has said that the king should step down before the elections, but the monarch shows no sign of budging.
King Gyanendra came to the throne in 2001 in tragic and bizarre circumstances after an apparently drunk and drugged Crown Prince Dipendra killed most of his family, including the king and queen, and then himself.