Environmentalists oppose the controversial dam scheme
Environmental groups have strongly criticised the Ilisu dam project in the south-east of the country, arguing that the scheme would displace tens of thousands of people and flood historic towns.
Its future had already been thrown into doubt after the main contractors in the $1.5bn project - British consortium firm Balfour Beatty and Impregilo of Italy - withdrew in November for similar reasons.
Now, UBS has ended its financial backing for the controversial project.
"The decisive factor behind this termination is that the general progress of the project has been unsatisfactory in recent years," UBS said in a statement.
"Until now there has been no definitive decision on what accompanying measures are to be taken to minimise the social and environmental impact of the project," it said.
Controversy
The Ilisu dam is part of an enormous regeneration scheme known as the Gap project.
Turkey plans it to be the second largest of 22 dams for generating electricity and irrigation in an area hit by poverty.
But ever since the dam was proposed, critics have argued that it would flood 300,000 sq km of land, including the sites of ancient Ottoman and Byzantine towns and villages.
They also say that more than 30,000 local people, mostly ethnic Kurds, would be displaced.
Neighbouring Syria and lraq have also objected to what they say is a potential reduction of the water flow in the River Tigris.
The news seems to have come as a surprise to Turkey's Energy Ministry.
The ministry told the BBC it was preparing a statement, but said the contractors building the dam were responsible for it and they would have to deal with the withdrawal of UBS.