"As those conditions are fundamental for the successful conduct of the business model for the intended joint venture, the company has decided to allow the joint venture to lapse with immediate effect," it said.
AirAsia said it would face no legal or financial impact from the move.
The Malaysia-based budget carrier, which has expanded rapidly through joint ventures in neighbouring countries, announced in February it had bought a 30 percent stake in VietJet, intending to set up a Vietnam-based low-cost airline.
The carrier was to be known as VietJet AirAsia.
Its 2010 full-year net profit nearly doubled to 1.07 billion ringgit ($340 million) compared to 2009.
In July, AirAsia and Japan's All Nippon Airways announced they would form a joint venture to establish a Tokyo-based low-cost airline. AirAsia already has similar joint ventures in Indonesia, the Philippines and Thailand.
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