A merger of the two businesses would have created Europe's number one heavy vehicles group with 30 per cent of the market.
A combined Volvo-Scania would have had a turnover of pounds 7.6bn, 50,000 employees and truck and bus sales of 130,000 a year.
Leif Johansson, chief executive of Volvo, said talks about acquiring the majority shareholding in Scania held by Sweden's Investor group had broken off because the conditions for reaching agreement "do not exist at the present time".
But he said Volvo intended to retain the 13 per cent stake in Scania that it bought last month. "We do not intend to sell our holding in Scania, regardless of possible changes in its ownership," Mr Johansson added.
He said that Volvo had bought the stake after discussions with Investor in the belief that it would be receptive to a bid for the entire company. But the pounds 385m share purchase was seen as an aggressive move by Investor.
Claes Dahlback, Investor's chief executive, immediately described the stake building as an "unfortunate" development which would make merger discussions more difficult than they otherwise would have been.
Since then, Investor has indicated there are other potential merger partners other than Volvo while Scania itself has consistently maintained that it has a strong future as an independent truck maker.
Unveiling a 17 per cent rise in profits for 1998 to 3.21 billion crowns last week, the Scania board said it was convinced it could remain an independent player in the truck market.
Mr Johansson said yesterday that an independent Scania, either under its present owners or with a broader ownership structure would be a "good solution" for Volvo.
However the Volvo chief executive indicated that he was ready to discuss co-operation with Scania in areas such as basic technology and components.