The decision was announced at a media conference after a one-day gathering of the African football “cabinet” headed by president Ahmad Ahmad from Madagascar.
Slow preparations for the January 12/February 4 tournament led to a decision widely anticipated for several weeks.
“It was decided to withdraw the hosting rights of the (CHAN) competition from Kenya in the light of accumulated delays from reports of the various inspection missions conducted in the country,” a CAF statement said.
Nations wishing to replace Kenya have until October 1 to submit bids with the new hosts to be named next month.
There has been media speculation that Morocco or South Africa could take over the running of the tournament.
A CAF inspection team departed Kenya on September 17 to report that only one of the four venues was ready to stage the tournament for home-based footballers.
Some CAF officials also expressed concern about the political situation in Kenya, where recently annulled presidential elections are set to be rerun late October.
It is the second time the regional economic powerhouse has lost the right to stage a CAF competition after being replaced by South Africa as 1996 Africa Cup of Nations hosts.
Kenya would have been the second successive east African country to stage the CHAN after Rwanda in 2016.
Other hosts since the 2009 inception of the Nations Championship were the Ivory Coast, Sudan and South Africa.
Angola, Burkina Faso, Cameroon, Congo Brazzaville, Equatorial Guinea, Guinea, Ivory Coast, Libya, Mauritania, Morocco, Namibia, Nigeria, Sudan, Uganda and Zambia have qualified for the 2018 finals.
Kenya completed the line-up as the host nation — a position they now forfeit.
Meanwhile, Egypt have replaced Zambia as hosts of the 2019 Africa U-23 Cup of Nations, which doubles as qualification for the 2020 Tokyo Olympic Games.
Zambia said they could not afford to stage the eight-nation competition.