Speaking to a Beijing newspaper, Yan Gang - the head of WPP's joint venture with the China International Trust & Investment Corporation (Citic) - said Citic had decided to team up with WPP's rival Omnicom instead, due to Sir Martin's offensive behaviour at their last meeting. "Because of this kind of attitude, we have been forced to cease co-operation with him," Mr Yan told reporters.
China has been one of WPP's key growth areas. It is currently the company's fifth largest market in the world. Sir Martin said recently that he expects it to become the business's third main source of revenue by 2008, when Beijing will hold the Olympic Games.
WPP played down the significance of the loss yesterday, revealing the joint venture generates just $6m (£3.3m) of revenue each year, a little more than 1 per cent of the $500m which WPP collects annually in China.
The dispute brings to an end an agreement which has been in place for more than 14 years. However, it had failed to perform in line with expectations over the past few years, prompting Mr Yan to write to Sir Martin several months ago.
In the letter, he warned that WPP's reputation could be at risk across the Chinese market if the group did not make a greater effort to put the venture with Citic back on track.
Sir Martin responded by asking Mr Yan to come to the UK for a meeting, after which the pair are believed to have agreed to commission an independent audit of the joint venture.
Although the report, delivered by Ernst & Young, was not believed to contain anything controversial, Mr Yan has claimed that he was offended by Sir Martin's attitude at their meeting in London.
It is considered a blow for WPP to lose the contract to Omnicom, the world's largest advertising company, and its major rival.
However, the group said it did not believe the loss of the deal would effect its credibility across the rest of the market.
Shares in WPP did not react to yesterday's news, closing up 3.5p at 641p, giving the company a market value of £8.03bn.