In a statement, Deutsche Börse chief Werner Seifert said the decision was taken after it was concluded that the LSE "was not ready to recommend (to its shareholders) a transaction at a price that we can consider as acceptable," as well as opposition by some Deutsche Börse shareholders.
Deutsche Börse offered to purchase LSE at the end of January for 530 pence per share or just under €2 billion ($2.6 billion). The LSE had twice rejected informal offers from Deutsche Börse at that price.
In the statement, the Deutsche Börse chief added that after withdrawing its offer, the company would make "a significant distribution of funds" to its investors,"in a move to pacify those involved with the major shareholder revolt which prompted the withdrawal.
Börse still believes in consolidation
The chairman of the board of German stock exchange, Deutsche Börse AG, Werner G. Seifert.
"We recognize that a significant portion of our shareholder base is focused on return of capital in the short term," Seifert said. "We continue to believe that shareholders, issuers, investors and intermediaries would all benefit from consolidation of the European exchange landscape as contemplated in our proposal."
"However," he continued, "the London Stock Exchange does not find itself in a position to recommend a transaction at a price we find supportable."
Seifert added that despite this, Deutsche Börse reserved the right to make another offer if any other company makes a bid for the venerable LSE.
Dissident shareholders issued warning
In February, two dissident shareholders went public with fears that Deutsche Börse would pay over the asking price for the LSE and argued that the company should return around €726 million ($961 million) of its cash to shareholders.
They warned Deutsche Börse that the majority of investors opposed the bid for the London market and could take action to oust its supervisory board at the next shareholder meeting in May.
Porsche, the German car maker, became the first big company on the German exchange to publicly express opposition to the takeover bid last week as opposition grew.
Rival records share price leap
Euronext, the pan-European stock market operator, which is also continuing talks with the LSE, sees synergies worth €203 million from a merger.
The amount was twice that of its German rival Deutsche Börse, which predicted synergies of €100 million from 2008 if it won the battle to acquire the LSE.
Euronext shareholders were said by sources to be "particularly interested" in the projected financial advantages of the deal. The company operates the exchanges in Paris, Amsterdam, Brussels and Lisbon.
The price of shares in Euronext rose by 9.16 percent in early dealing on Monday. Shares in Euronext gained 9.16 percent to 31.10 euros. The overall Paris stock market, which Euronext operates and where it is quoted, was showing a slight gain of 0.16 percent to 4,097.84 points.
The London Stock Exchange (LSE) building in Paternoster Square, London.
Meanwhile, shares in the London Stock Exchange plummeted almost 10.0 percent after Deutsche Börse withdrew its takeover offer. LSE shares lost 9.65 percent to 487 pence in early morning trade. The FTSE meanwhile nudged up 0.05 percent to 5038.80 points.
The owner of the Frankfurt Stock Exchange, Deutsche Börse has said it is quitting the takeover of the owner of the London Stock Exchange, LSE. Its planned GBP 1,3 billion (EUR 2 billion) takeover (530p per share) was stopped by opposition for various shareholders from both parties. Its announcement is a setback for the chief executive Werner Seifert. 

This just leaves the Euronext NV as the sole bidder of the LSE. It owns the stock exchanges in Paris, Amsterdam, Brussels, Lisbon and the tiny London-based exchange Liffe.