American and Cambodian troops had been due to take part in the annual "Angkor Sentinel" joint exercise this summer, which has been held for the past seven years.
But defence officials in Phnom Penh said the exercise had been halted because Cambodian troops were needed to carry out an ongoing drug crimes purge and prepare for upcoming local elections due to be held in June.
"We need forces to maintain security during the local elections in 2017. That's why we are suspending the exercise," Defense Ministry spokesman Chhum Socheat told AFP.
Outgoing US President Barack Obama spent much of his eight years in office trying to forge closer alliances in Asia, part of his much-vaunted, but often distracted, pivot to the region.
It is unclear whether his successor Donald Trump will continue the policy.
Cambodia is one of Southeast Asia's staunchest China allies, with Beijing rewarding the government of strongman premier Hun Sen with lucrative business and defence deals.
Last month Cambodia hosted the "Golden Dragon" joint exercise with Chinese troops.
In recent years Cambodia has become a thorn in the side for neighbouring nations hoping to present a unified front against China's island-building in contested waters.
The United States has also sparred with Beijing over the issue.
While his policies for Southeast Asia remain unclear, Trump has vowed in various tweets and speeches to take a more muscular approach towards China on trade and regional security.
A spokesperson at the US embassy in Phnom Penh did not respond to requests for comment.
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