The announcement ended months of uncertainty and years of political wrangling over the planned Hanhikivi 1 plant, a project that would have increased Finland's dependency on Russia for its energy.
Fennovoima said it had terminated the contract due to RAOS Project's "significant delays and inability to deliver the project," referring to Rosatom's Finnish subsidiary.
"The war in Ukraine has worsened the risks for the project. RAOS has been unable to mitigate any of the risks," it added, without going into further detail.
Rosatom said it was "extremely disappointed" by the decision which it said had been taken without any detailed consultation with the project's shareholders - including another of its subsidiaries.
"The project has been progressing and we had established a good working relationship with our client," it said in its statement, adding that it reserved the right to defend its interests "in accordance with applicable contracts and laws".
The plant was commissioned by Fennovoima, a consortium in which Finnish stakeholders including Outokumpu, Fortum and SSAB own two thirds. Rosatom's subsidiary RAOS Voima holds the rest.
Finland's government approved Rosatom's involvement in 2014 - though surveys suggested Finns felt growing unease about the deal following Russia's annexation of Crimea earlier that year.
After Russia's invasion of Ukraine in February - which Moscow calls a special military operation - Finland's minister of economic affairs, Mika Lintila, repeatedly said it would be "absolutely impossible" for the government to grant a construction permit.
Finland shares a 1,300-km (810-mile) mile border with Russia. The Ukraine conflict has pushed Finland and neighbouring Sweden to the verge of applying for NATO membership.
Fennovoima's management said it was too early to speculate on what could happen next and whether it would seek another partner to complete the power plant.
"I think there will be need for nuclear power also in the future but that's only my personal opinion," the chairman of Fennovoima's board, Esa Harmala, told reporters.
The cost of the planned facility was initially set at 7.5 billion euros ($7.89 billion) and Harmala said the consortium had already spent 600-700 million euros on the facility.
Fennovoima said its cooperation with RAOS Project would end with immediate effect and that it was not yet possible to say what would happen to Rosatom's holding in Fennovoima.
($1 = 0.9504 euros)
(Reporting by Anne Kauranen and Essi Lehto, Editing by Louise Heavens, Kirsten Donovan and Andrew Heavens)
By Anne Kauranen