"The decision to withdraw came after the Iraq Independent Electoral Commission (IEC) allowed the displaced Kurds to register to vote. That was coupled with the security tensions in Diyala, Tikrit, Mosul and some parts of the Kirkuk," the head of the Arab list, Wasfy al-Assy, said.
Al-Assy said his Arab Unifying Front coalition had already decided to skip the national elections.
The boycott by oil-rich Kirkuk's Arab population was the long-awaited fallout from the 16 January decision by the Iraqi interim government and IEC to permit Kurds expelled from the city under Saddam Hussein to take part in the national and provincial vote.
The move in effect tipped the balance of power in the coveted city in favour of the Kurds and further alienated Sunni Muslim Arabs living around Kirkuk's province.
Kirkuk currently lies outside the boundaries of Iraq's Kurdish autonomous region but the deal was seen as a boost to Kurdish dreams of an independent state with the vital oil hub as its capital.
The agreement clears the way for up to 100,000 displaced Kurds to vote in this month's election in Kirkuk, giving the long-suffering ethnic group the dominant political voice in the multi-ethnic city.
In the last week, 49,000 Kurds have registered to vote in Kirkuk, the IEC told AFP.