The company said Wednesday that it "has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully."
Earlier in the day, Renault indicated the French government requested its board of directors postpone the vote on the merger. France, which owns 15% of Renault, previously indicated that it would support a merger if the companies protect French jobs and auto plants.
Renault could not be reached for comment Wednesday evening.
The deal would have created the third largest carmaker behind Volkswagen and Toyota. General Motors would have fallen to fourth place in the global ranking. The proposal is the latest example of established automakers seeking partnerships to share the costs of developing new technologies including electric vehicles and autonomous driving systems.
Fiat Chrysler (FCAU) owns brands including Jeep, Dodge, Alfa Romeo and Maserati. Among its top markets is North America, where Renault does not have a significant presence.
When it first made the merger proposal last month, Fiat Chrysler said a combination would produce annual cost savings of more than €5 billion ($5.6 billion). The company said no plants would be closed as a result of a merger.
Renault is already part of a major global alliance with Japanese automakers Nissan and Mitsubishi. Renault and Nissan both own major stakes in one another. But that alliance was put under extreme pressure when Renault's Chairman and CEO Carlos Ghosn was arrested in Japan last year, accused of improprieties in his pay package from Nissan.
Fiat Chrysler was formed as a merger of two struggling automakers. Fiat bought a controlling stake in Chrysler following the US government bailout of the company in 2009. They were formally merged in 2014.
But Fiat Chrysler is a distant fourth in US sales and 8th globally. The company has also trailed its competitors in adopting electric vehicle and self-driving technology, which many deem the industry's inevitable future.
Sergio Marchionne, its former CEO who passed away a year ago, had spoken openly of the need to merge Fiat Chrysler with a larger automaker to give it the scale and resources to compete. He had even sought a merger with General Motors, only to be rebuffed. He had been far more blunt than other auto executives about the threat to the industry that new entrants such as Google (GOOG) posed to old-line automakers.
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