The £12.7 billion project has already come in for repeated criticism over delays and fears over the security of patient information.

Fujitsu's £896 million, 10-year contract for installing the programme in the south of England has been terminated after months of negotiations, both the company and the NHS confirmed.

Connecting for Health, the NHS IT programme, said it would now issue a termination notice to Fujitsu in a move that could cost the Japanese-owned services company an estimated £300m.

Reports suggest the dispute centred on the NHS's demand for more flexibility in delivery of the services - a request that would cost more. Fujitsu wanted either more money or a return to the original contract specifications.

A spokeswoman for the NHS's Connecting for Health said: "Regrettably and despite best efforts by all parties, it has not been possible to reach an agreement on the core Fujitsu contract that is acceptable to all parties. The NHS will therefore end the contract early by issuing a termination notice.

"Work has started immediately on planning the necessary arrangements."

Fujitsu is the second IT firm to leave the project. In 2006 Accenture, which was responsible for delivering the system to the north and north east of England, quit key parts of the project in 2006.

A Fujitsu official told the Financial Times that talks had broken down and the company had wanted to revert to the original contract, which provided less flexibility than the NHS is now seeking.

Failure to agree a price for that lay behind the breakdown, the official said.