The man who found the letter had bought the record as part of a collection at a used-item sale for £10.
The letter is now valued at an estimated £60,000 ($72,000).
In the letter, the Beatles Legend outlines his reason for returning his MBE (Member of the British Empire) medal.
The Queen awards the medals to those who have left a notable mark in their fields. Lennon, along with the rest of the Beatles, received theirs in October 1965.
The typed message reads: "Your Majesty, I am returning this MBE in protest against Britain's involvement in the Nigeria-Biafra thing, against our support of America in Vietnam and against Cold Turkey slipping down the charts."
It's signed "John Lennon of Bag".
"Bagism" is a term Lennon and his wife, Yoko Ono, coined during their peace campaign in the late 60s. Its objective was to break down stereotypes and eliminate prejudice.
The letter was discovered 51 years to the day since the Beatles received their award.
The owner, who wishes to remain anonymous, brought it to a special memorabilia day at The Beatles Story exhibition in Liverpool on Wednesday.
"You can quite clearly see that the signature in this letter has been smudged. My theory is that John Lennon never sent this draft because of the smeared ink," music memorabilia expert Darren Julien said. "If you're writing to The Queen, you want the letter to look pretty perfect, you don't want the ink to be smudged. This suggests that he wrote a second version of the letter, which was the one that was actually sent to The Queen."