This is the second multi-billion project which has been abandoned by a Kuwati state-run company in the past three months.
The cancellation of the fourth refinery, which was supposed to process 615,000 barrels of crude a day, came after the findings of the accounting watchdog - the Audit Bureau - that KNPC did not adhere to the regulations of the tender committee and following strong opposition in the country's parliament.
The Kuwaiti Government had plans to increase the country's refining capacity to 1.415 million barrels a day and wanted the Al Zour refinery to replace the aging Shuaiba refinery.
Kuwait's ruler dissolved Parliament last Wednesday and called for fresh elections, a move that could end weeks of a political deadlock that has stalled an economic bailout program for the Gulf nation's banks.
The scrapping of the Al Zour refinery comes just three months after Kuwait's Parliament forced state-owned Petrochemical Industries Co. to pull out of a planned 18 billion dollars joint-venture deal with US chemicals giant Dow Chemical Co.