RSM,
The best way to reject a girl is be honest and be discreet.
She also has a pride, and you shouldn't reject her in the presence
of anybody.
Privately, just tell her " You are a nice girl, but you are not my
type."
Do not let anyone know you rejected her. Because words will get
around and gossips/rumours actually hurts more than truth.
If anyone who knows about the issue asks, tell them " WE decided to
be friends."