Balfour Beatty chief executive Mike Welton said: "We have, however, clearly reached a point where no further action nor any further expenditure by Balfour Beatty on this project is likely to resolve the outstanding issues in a reasonable timescale."
A Balfour Beatty spokesman added: "There was no pressure from the government to stay in and pressure from other sources was not behind our decision to pull out."
Environmental groups, who say the dam would have made 30,000 people homeless and destroyed historic sites, demonstrated outside Balfour Beatty's annual meeting earlier this year.
The groups welcomed the decision and claimed it as a victory. A Friends of the Earth spokesperson said: "This is a tremendous win. Balfour Beatty's decision shows the power of shareholder pressure and publicity campaigns."
Balfour Beatty attempted to play down the impact of this week's decision. A spokesman said: "Our turnover will be £3bn this year and this would have been worth £30-40m a year so it's not a big issue for us in truth."
There was no pressure from government to stay in
Balfour Beatty spokesperson
The company refused to say what its involvement in the dam had cost.
The project, which would have been worth about £200m to Balfour Beatty over eight years, is now in doubt because it is unclear from where funding will now be found.
Impreglio, Balfour Beatty's Italian partner, has also pulled out of the project. The Turkish government is maintaining that the scheme will go ahead.
The project has been contentious since its full details were released in 1999. Syria and Iraq were opposed to the project along with several British Cabinet ministers.