The plan was abandoned on Tuesday after already putting out more than half a billion euros on the project.
German taxpayers stood for 250 million euros of the loss as aerospace company EADS paid the remaining amount.
A government official said the organization has decided to cancel the purchase after it was revealed that the required authorization to fly the drones over European airspace would be too expensive at a cost of over 600 million euros.
The US-made drones by Northrop Grumman were planned to be equipped with special signal interception devices and then re-named to Euro Hawk.
One already purchased drone will continue to be used for testing purposes; however, the plan to buy another four drones has been cancelled.
German Bundeswhr military is reportedly seeking to add armed drones to its arsenal.
In April, German weekly Der Spiegel reported that Germany is engaged in talks with the Israeli regime to buy assassination drones that are apparently more cutting-edge and technologically advanced than their US-made Predator rivals.