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It is because it does not clear the neighbourhood of its orbit. This means that it shares most of its orbit with other objects in its region which happens to be the Kuiper Belt. The definition of Planet which was proposed back in 2006 is

1) Must orbit its host star.

2) Must have sufficient amount of Gravity to hold a near spherical shape, this is called Hydrostatic Equilibrium.

3) Must Clear the Neighbourhood.

Pluto doesnt meet the third criteria but since it isnt a satellite it is Dwarf Planet.

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