Volvo on Monday said it had suspended a project to build an armoured infantry fighting vehicle with a Russian company due to uncertainty over the Ukraine crisis.
Renault Trucks Defense, which is owned by the Swedish truck manufacturer, in February 2013 signed an agreement to develop a combat vehicle with Russia's state-owned Uralvagonzavod.
But the project has been reconsidered due to concerns the Swedish government would veto the deal as the West seeks to isolate Moscow over its annexation of Crimea.
The vehicle, named Atom, would use a Volvo motor and so would require approval from Stockholm.
"As we see many uncertain factors around a possible collaboration, we have suspended our cooperation agreement until further notice," Volvo spokesperson Karin Wik told AFP, without giving further details.
The agreement was meant to last until March 2015, she added.
Sweden is not part of NATO, whose members have yet to block weapons sales to Moscow over its intervention in Ukraine but have suspended military cooperation.
Sweden has been outspoken against Russia's annexation of Crimea.
Swedish daily Dagens Industri wrote last week that Stockholm's "policy is clear: Swedish companies shouldn't furnish the Russian military or defence industry with military equipment that risks being used against Swedish troops."
Last September a mock-up of the Atom was shown at a Russian arms fair, according to several specialist publications.