The scheme is popular with Australians, with the most recent statistics showing that more than 20,000 Australians apply each year to live and work in the US.
The President instead said he wants to introduce an Australian style merit-based immigration system.
“I am today starting the process of terminating the diversity lottery program,” Mr Trump told reporters in Washington.
“I’m going to ask Congress to immediately initiate work to get rid of this program.
“Diversity lottery. Sounds nice. It’s not nice. It’s not good. It hasn’t been good. We’ve been against it. So we want to immediately work with Congress … on terminating it, getting rid of it.”
The move comes after it was revealed that the man behind Tuesday’s deadly truck rampage in lower Manhattan was an Uzbek national who gained entry to the US in 2010 legally via the green card lottery.
The lottery provides 50,000 immigrant visas each year via a lottery. According to Australia’s US embassy, the scheme aims to diversify the US population by choosing applicants mostly from countries with low rates of immigration to the country.
Mr Trump said he wanted to replace the lottery with a “merit-based” program that would halt “chain migration”, which is the process by which immigrants take friends and family with them into the US.
Mr Trump described the alleged terrorist Sayfullo Saipov, 29, as an “animal” and claimed US chain migration rules may have allowed him to bring 23 others to the US.
According to the most recent statistics, 20,579 Australians applied for a green card in 2015 and 1798 were successful.
“Terrorists are constantly seeking to strike our nation, and it will require the unflinching devotion to our law enforcement, homeland security, and intelligence professionals to keep America safe,” Mr Trump said.
“We will take all necessary steps to protect our people and our communities, and to protect our nation as a whole.
“We have to get much tougher. We have to get much smarter. And we have to get much less politically correct.
“We’re so politically correct that we’re afraid to do anything.”
Mr Trump and his administration have repeatedly praised Australia’s immigration policies.
“We want a merit based system and we don’t want chain migration where somebody like him will ultimately be allowed to bring in many, many members of his family,” Mr Trump said.
In August, the president proposed the RAISE Act, a points-based system favouring green cards awarded to English speaking applicants who can financially support themselves.
When Australian Prime Minister Malcolm Turnbull explained to Mr Trump in their infamous January 28 phone call Australia’s tough Manus Island and Nauru refugee policies the president replied: “That is a good idea. We should do that too. You are worse than I am”.
Mr Trump has already slashed the country’s annual refugee intake by more than 50 per cent.
He has also tightened visa issuance around the world and attempted to ban travellers from 11 countries, most of them with Muslim-majority populations, but not Uzbekistan.