Kane said Thursday that she won't approve the 20- to 30-year contract with Camelot Global Services because it contravenes the state constitution and it's not allowed by law.
The contract's legality is being challenged in court by Democratic lawmakers and the union that represents lottery employees. Corbett can challenge Kane's decision in court.
Corbett has said he believes Camelot can do a better job than the state in raising lottery profits. Democratic lawmakers criticize Corbett as diverting money from programs for the elderly to a foreign firm.
Camelot runs the United Kingdom's official lottery. The attorney general's office reviews state contracts for form and legality.