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Sweden has been selling arms to the oil rich nation for decades but the policy has been strongly debated in the Nordic nation and caused divisions within the Social Democrat-Green coalition government.

The leader of the Swedish Left Party Jonas Sjöstedt referred to the news to end the deal as a “victory” on Tuesday and wrote on Twitter: “Credible feminist politics demanded this.”

Jag välkomnar att regeringen nu avslutar vapenavtalet med Saudi. En trovärdig politik för feminism och mr krävde det. En framgång för V.

— Jonas Sjöstedt (@jsjostedt) March 10, 2015

But former Foreign Minister Carl Bildt issued sharp criticism of the government.

"This is not least about Sweden's credibility as a contractual partner. That credibility is important to a relatively small country like Sweden,” he wrote on his blog.

“What has happened is unfortunate. Sweden has been damaged,” he added.

Swedish government was obviously on verge of complete meltdown over a defence memorandum with Saudi that in practice had little substance.

— Carl Bildt (@carlbildt) March 10, 2015

And Leif Johansson, chairman of Swedish telecommunications giant Ericsson, warned that the decision, which comes hot on the heels of a human rights spat between Sweden and the Arab League, could harm Sweden's trade relations.

He told newspaper Dagens Industri: “If you make yourself the enemy of the Arab League it could cause very great damage. But we don't know how this will play out until after a few years, it depends completely on how we manage to patch up our relations with these countries.”

But Saudi Arabia researcher Thord Janson at Gothenburg University said he did not think the scrapped deal would have a long term effect on Swedish trade.

"I think that the Saudis feel that they have made their point and that they will want to return to normal conditions as soon as possible," he told newspaper Expressen.

The announcement by Prime Minister Stefan Löfven came late on Tuesday, following a spat between Sweden, Saudi Arabia and the Arab League over human rights violations.

Foreign Minister Margot Wallström said on Monday that Saudi officials had stopped her from making her opening address to an Arab League meeting in Cairo due to her stance on human rights.

“The ministers have voiced their condemnation and astonishment at the issuance of such statements that are incompatible with the fact that the Constitution of the Kingdom of Saudi Arabia is based on Sharia,” read a statement issued by Arab League ministers following their meeting in Cairo.

Wallström's press secretary Erik Boman told The Local on Tuesday that the statement “should be interpreted as a way of Saudi Arabia trying to save face.”

“It is one of very many statements on different issues released by the Arab League after a meeting – by tradition they do that kind of thing,” he added.