The Qualifications and Curriculum Authority today announced it was to dissolve its five-year contract with ETS Europe with immediate effect.
The move follows the marking fiasco which saw delivery of national curriculum tests delayed.
The QCA said the agreement was mutual and ETS would not be paid for any years of the contract left to run.
In a joint statement today, it was announced ETS were to make a £19.5 million payment to the QCA, as well as an additional £4.6 million for the cancellation of invoices and other charges.
Details of arrangements for next year's tests, which are taken by 11 and 14-year-olds, will be announced in the autumn.
The £156 million contract with ETS was awarded in February last year, and was due to run until 2012.
Ken Boston, chief executive of the QCA, said: "ETS Europe was selected due to the strength of their worldwide experience in delivering large scale assessments.
"It is disappointing that the issues with this year's national curriculum test results have meant that the partnership between QCA and ETS Europe must end early."
Zoubir Yazid, managing director ETS Global BV, said: "ETS Europe has apologised to schools for the delays in marking national curriculum assessments in England. As a subsidiary of a global, non-profit company, we are dedicated to assuring quality and equity for all pupils, and we are sorry that the results this summer were delayed for some schools.
"However, we would argue that the quality of the marking is high, due to the stringent new checks that we introduced this year."
ETS will continue working on this year's tests to deliver results to schools and ensure that schools have complete sets of results.
An independent inquiry into the delays, led by Lord Sutherland, is due to report back in the autumn.
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