The old building had "aged beyond its ability" to be improved to meet security and safety standards without a major infrastructure investment, the embassy said in a statement.
The State Department, however, announced plans for relocating the London embassy in 2008, while George W. Bush was still president, because of concerns about security following the September 11 terror attacks.
Just south of the River Thames, the cube-shaped embassy building is in sight of Westminster and part of a £15 billion, 561-acre regeneration project set to transform one of the South Bank's last remaining industrial stretches.
On Thursday night, Trump tweeted that he would cancel next month's trip to London, writing that he disagreed with what the former administration did regarding the USA embassy there.
Kahn even questioned Britain's Prime Minister Theresa May's urgency to extend an invitation of a state visit to Trump in the first place. "It seems he's finally got that message", tweeted London Mayor Sadiq Khan.
In his tweet Mr Trump said: "Reason I cancelled my trip to London is that I am not a big fan of the Obama Administration having sold perhaps the best located and finest embassy in London for "peanuts", only to build a new one in an off location for 1.2 billion dollars".
"I think we have to welcome the American President to Britain", Johnson said.
White House press secretary Sarah Huckabee Sanders did not reply to a request for comment. She suggested a formal visit could still, but offered no details.
In the meantime, the relationship between May and Trump has come under strain.More news: Vice President Pence to lead USA delegation to Olympics
His decision not to come was welcomed by critics outraged by the USA travel ban on Muslim-majority countries, and more recently, Trump's decision to re-tweet anti-Muslim videos posted by a British far-right organisation.
Trump's cancellation was met with humour on social media, with parodies of the president's tweet trending on Twitter.
The exchange prompted further calls to dump the visit.
He noted how Mr Trump would have been met by "mass peaceful protests".
In 2009, when Barack Obama was president, the United States agreed to sell its embassy in Mayfair to the Gulf investor Qatari Diar for an undisclosed sum to help fund a new embassy.
"The US is the biggest single investor in the United Kingdom, yet Khan and Corbyn seem determined to put this crucial relationship at risk", he tweeted.
"Beyond the disagreements between leaders and the optics of this cancellation, U.S. -UK relations continue to remain strong - largely because there are a wide range of institutional ties between the nations in military cooperation, intelligence, economics, and commerce that operate as normal despite the political storms that may arise", Mahaffee said.
A Number 10 source said: "Boris expresses himself in his own inimitable way, but we agree that any risk to the crucial US-UK relationship is not in our country's best interests".