The report follows spy photos over the past year that have shown Smart-sized Renault prototypes testing across Europe.
According to France's La Figaro magazine, a Renault spokesperson has confirmed that its end of the project has been shut down, citing a potential sales conflict with Smart's car.
"It doesn’t make economical sense to launch a two-seater Twingo when the two-seater smart is already on the market," the source is quoted by the magazine.
The unnamed spokesperson reportedly added that a business case for Renault's own Fortwo was challenged further by the existence of the tiny Renault Twizy electric car.
The two brands are not done working together however, with the next-generation Twingo light car and a new Smart four-seater still in development.
Smart's version of the new Twingo is expected to carry the dormant Forfour name, with the last model built in partnership with Mitsubishi.
Both cars are expected to launch in 2014, and an Australian debut could be on the cards.