The company had been funding an athletics programme for children, but that will end with immediate effect.
“This is our decision given the negative public perception regarding corruption allegations and doping in sport against the IAAF. We believe that this could adversely affect our reputation and image and therefore have terminated the existing contract.”
Last month, sportswear giant Adidas ended its sponsorship deal with the IAAF.
Lord Coe responded strongly, simply saying he was “angered and dismayed by today’s kids’ athletics announcement.
“We will not accept it. It’s the kids who will suffer.”
In a wider statement, the IAAF also emphasised the number of children that would be affected by Nestle’s decision.
“In 2016, IAAF Kids’ Athletics plans to reach a further 15 countries, training 360 lecturers, instructing 8,640 physical education teachers, with three million children participating by the end of the activation,” the governing body said.
The IAAF is reeling in the face of widespread allegations of corruption and bribery. New president Lord Coe was brought in to clean up the organisation, and has been travelling the world trying to ease the concerns of corporate sponsors.
The loss of Nestle, coming so soon after Adidas, is a big blow to the body.
While Nestle was in the final year of its deal, Adidas’ 11-year sponsorship deal, reportedly worth $33m (£23m), was due to run until 2019.
However, sources have told the BBC the figure was much higher and worth up to $8m a year.