Nokia sold its mobile phone business to Microsoft in April, but it was forced to leave the Indian factory out of the deal due to the tax dispute with Indian authorities. It continued to operate the factory as a contract manufacturing unit for Microsoft.
"Microsoft has informed Nokia that it will be terminating the manufacturing services defined in the agreement with effect from Nov. 1. In absence of further orders from Microsoft, Nokia will suspend handset production at the Sriperumbudur facility," Nokia said in a statement on Tuesday.
Nokia's business now includes network equipment, navigation technology and patents.
The plant in Chennai was among Nokia's biggest for making handsets but has suffered after the company got caught in the tax dispute.
In April Nokia introduced a voluntary retirement scheme at the factory after a review in which it considered the "predictability and stability of the regulatory environment" in countries where it operates. At that time the plant employed about 6,600 full-time workers.
An asset freeze imposed by the tax department stops Nokia from "exploring potential opportunities for the transfer of the factory to a successor to support the long-term viability of the established, fully functional electronics manufacturing ecosystem," the company said.
(Reporting by Nivedita Bhattacharjee in Mumbai and Jussi Rosendahl in Helsinki; editing by Jane Baird)
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