It has been said that "There really isn't any way to reject someone nicely".
But i think that you reject someone nicely by rejecting them nicely.
Say it in the nicest way possible. Look in her eyes. Hug her if you must.
People do appreciate the truth. I think saying stuff like "I'm not ready for a relationship." or "I already have a girlfriend" when those things simply aren't true is not the best way to go.