By David Ljunggren
The move means that four manufacturers are left in the competition, which Canadian officials say will be worth between C$15 billion ($11.4 billion) and C$19 billion. Canada is due to issue its final requirement for the fleet next May.
Canada's Liberal government, stung by a series of procurement mishaps over previous decades, insists the contest will be an open one despite the armed forces' close links to the U.S. military and widespread use of American equipment.
The three sources, who declined to be identified given the sensitivity of the situation, said Dassault was not convinced it could meet the necessary security requirements.
France does not belong to the so-called Five Eyes group of nations that share top secret intelligence - Canada, the United States, Britain, Australia and New Zealand. This would have made operating with U.S. forces complicated, the sources said.
Sweden's Saab AB, one of the four remaining contenders, faces the same challenge with its Gripen jet.
The Airbus consortium, makers of the Eurofighter, includes Five Eyes member Britain.
The office of federal Procurement Minister Carla Qualtrough, in overall charge of major military purchases, said it was looking into the reported withdrawal.
Canada has been trying unsuccessfully for almost a decade to buy replacements for its aging F-18 fighters, some of which are 40-years old. The former Conservative administration said in 2010 it would buy 65 F-35 jets but later scrapped the decision, triggering years of delays and reviews.
Canada is a member of the international consortium that developed the F-35. Canadian Prime Minister Justin Trudeau came to power in 2015 vowing not to buy the plane on the grounds that it was too costly, but Ottawa has since softened its line.
($1 = 1.3130 Canadian dollars)
(Reporting by David Ljunggren; Editing by Himani Sarkar)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)