The Riyadh-based Islamic Solidarity Sports Federation on Sunday called off the athletic games planned for Tehran in April because of Iran's use of the term "Persian Gulf" on winners' medals.
The ISSF, headed by Saudi Olympic Federation president Prince Sultan bin Fahd, said after an emergency board meeting that Iran's local organising committee "unilaterally took some decisions without asking the federation by writing some slogans on the medals and pamphlets of the games."
Iran "did not abide by the rules of the Islamic Solidarity Sports Federation" and "did not follow the decisions taken by the general assembly of the federation at a previous meeting in Riyadh," it said in a statement.
The games were being called off because of the dispute, the ISSF said.
Iran's committee for the games criticised the decision through its website.
"In spite of convincing arguments made to the ISSF executive committee (by Iran's committee), regrettably and without presenting any logical reasons, the ISSF committee decided not to hold the games with Iran as the host," it said.
Swine flu worries and the dispute over Tehran's insistence on using "Persian Gulf" for the waters between Iran and the Arabian peninsula had already caused the games to be postponed since an initial planned date of last October.
The Arab countries of the oil-rich region insist on the term "Arabian Gulf" or simply the "Gulf."
It would have been the second time the games were held after a first tournament was held in the Saudi Red Sea city of Jeddah in 2005.
The cancellation comes amid a rise in tensions between Riyadh and Tehran, as Saudi Arabia has been seeking to unite Arab countries and isolate its regional rival.
Both have traded accusations of interfering in the conflict in Yemen between government forces and Shiite rebels.
And an Iranian official confirmed on Sunday that Tehran has suspended Muslim pilgrimages to the holy cities of Mecca and Medina in Saudi Arabia because of alleged mistreatment of Iranian pilgrims by Saudi religious police.