The law was awaiting Karzai's signature after being passed by parliament last month, but it was widely criticised as weakening protection for victims of domestic violence and of forced marriage.
One article in the proposed law would have banned family members from testifying against male relatives in cases where women were abused.
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The New York-based Human Rights Watch group had earlier called on Karzai not to sign the law, saying that it "let batterers of women and girls off the hook".
"The law would prohibit judicial authorities from questioning the relatives of a criminal defendant, effectively silencing victims of domestic violence and forced or child marriage," HRW said.
The law had already been passed by both houses of parliament, which are dominated by conservatives and tribal chieftains.
Improved women's rights are seen as a key achievement of the 13-year international intervention in Afghanistan, and donor nations are pushing to cement progress before NATO troops withdraw by the end of this year.
During the 1996-2001 Taliban era, girls were banned from school. Women were forced to wear burqas and not allowed to take part in any form of public activity.
In 2009 Afghanistan passed the landmark Elimination of Violence Against Women law, but critics say its implementation has been weak.
The United Nations has repeatedly raised concerns that women's rights could already be deteriorating as international attention on Afghanistan's development fades.
Rights campaigners fear religious conservatives are seeking to increase their influence and undermine advances ahead of April's presidential elections to choose Karzai's successor and parliamentary elections in 2015.
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