Subaru last won the WRC in 2003 and has been third four times since
Subaru have become the latest team to withdraw from next year's World Rally Championship as the economic downturn continues to hit motorsport hard.
It comes a day after Suzuki also quit the WRC and less than a fortnight after Honda withdrew from Formula One.
Colin McRae, Richard Burns and Petter Solberg all won titles with the Japanese team in its 20-year history.
"This sudden decision is a response to the widespread downturn affecting the industry," Subaru said in a statement.
The team was established in 1989, when the manufacturer teamed up with Prodrive, a motorsport and automotive engineering group with dealings in the UK, Thailand and Australia.
"Subaru's departure from the World Rally Championship is a great loss as it is one of the sport's icons," added Prodrive chairman David Richards.
"Although this closes a significant chapter in Prodrive's history, our focus now turns to the future."
Richards, who also owns the commercial and media rights to the World Rally Championships, said the decision had been taken over the course of the weekend as the economic downturn claimed another victim in the world of sport.
"We had an urgent call for a meeting over the weekend," he told BBC Radio 5 Live.
"Despite the fact that we have entered the championship for next year and were actually testing last week in Spain, Subaru just felt the sudden downturn in their business was so dramatic that they had to make some quick decisions."
Among his previous roles were stints as team principal at Formula One teams BAR and Benetton, and Prodrive may now look at a move into motorsport's highest tier.
The 56-year-old Richards admitted he would now have more time to think about such a step and said radical cost-cutting measures, which were announced by the sport's governing body last week, made a move into F1 more "realistic".
In the meantime, Prodrive has said it will be looking to redeploy staff assigned to the WRC programme, which accounts for around 20% of the company's turnover.
Subaru won six world titles in all, with the last coming with Solberg's victory in 2003. But recent years have been harder going for Subaru, with their last rally win coming in Mexico back in 2005.
Subaru's exit leaves just two manufacturers in next year's championship in the shape of Citroen and Ford.
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