According to a statement, the company said the government was refusing to meet its obligation under a shared funding agreement, and it could no longer afford to back the project alone.
Nautilus' CEO, Mike Johnston, said the situation would result in about 60 staff members being made redundant.
“While terminating the equipment build for the Seafloor Production System and reducing staff numbers to this extent was a difficult decision, it was appropriate,” Mr Johnston said.
“Despite this setback, the Company remains committed to maximizing shareholder value by achieving its objective of developing the world's first commercial seafloor copper-gold project and launching the deep water seafloor resource production industry.”
Mr Johnson said the company would maintain its “highly prospective ground position”, which includes 19 identified prospects in Tonga.
PNG's government awarded Nautilus the world’s first deep-sea mining lease in January 2011.