The group added that it would file for damages against the US firm, "in compensation for the loss of planned long-term future business."
"Today Swatch Group terminated its cooperation contracts with Tiffany & Co," said the Biel-based group in a statement.
"This action became necessary following Tiffany & Cos systematic efforts to block and delay development of the business," it added.
Swatch founded Tiffany Watch Co. Ltd in 2008 to develop, produce and distribute Tiffany-branded watches under a partnership agreement with the US jeweller.
With the termination of the agreement, Tiffany Watch will begin winding down its business over two years.
"We do not understand the behaviour of Tiffany," Swatch chief executive Nick Hayek told AFP.
He said Swatch attempted on several occasions to raise its concerns with Tiffany, but to no avail.
Hayek revealed that he had even met the head of Tiffany "several times, but with the result that nothing changed."
Citing an example of how the US group failed to cooperate in the development of the watch business, Hayek said Tiffany opened four sales points in China but did not include watches in these new boutiques.
"We have been warning them since 2009, but now we can no longer take responsibility for such detrimental behaviour. We are turning the page," said Hayek.
"It's a shame, we were convinced that it was a fabulous opportunity and that there is potential," he said.
Bank Vontobel analysts estimated that sales of Tiffany Watch reached 30 million francs ($34 million) in 2010, making up just 0.5 percent of the group's overall revenues.
They believed however that the sales potential was over ten times that -- at between 300 to 400 million francs.