Kane, speaking Thursday at a Harrisburg news conference, said her decision was based only on legal considerations, The Philadelphia Inquirer reported.
She suggested Corbett should have asked for legal advice before signing a contract with Camelot Global Services.
Corbett is a Republican, Kane a Democrat. She won last year's election after promising to investigate Corbett's handling of the Jerry Sandusky investigation while he was attorney general.
Kane at her news conference said the public should "be wary of politicians and attempts to blame the lawyers" for lost revenue.
"It is disingenuous to put the cart before the horse by promising money to people in need based upon a contract before making sure that contract was legal, then blaming the messenger when it is deemed illegal," she said.
The Pennsylvania Lottery sold $3.5 billion in tickets last year and brought in $1 billion in revenue, dedicated to programs for the elderly. Corbett said Camelot, manager of Britain's national lottery, could increase profits.
But Kane said the contract violates Pennsylvania gambling laws and the state constitution because the governor acted without legislative approval.
Corbett in a statement said he was "deeply disappointed" by Kane's action. He said he is considering what steps to take, including a possible court challenge.
The Camelot contract was Corbett's first effort to privatize state services. He has also said he wants to sell the state liquor stores.