Peter Hultqvist, Sweden’s defence minister, confirmed on Tuesday that the deal was off, removing a cause of division within the country’s left-leaning coalition but deepening a rift with business leaders who implored the government to prolong the agreement.

On Monday, foreign minister Margot Wallström complained at a meeting of the Arab League in Cairo that Saudi Arabia had objected to her planned speech on democracy and women’s rights. She had also condemned the sentencing of Saudi blogger Raef Badawi to a “medieval” punishment of 1,000 lashes.

But on Tuesday, Arab foreign ministers expressed “condemnation and astonishment” at Wallström’s remarks, which were “incompatible with the fact that the constitution of the kingdom of Saudi Arabia is based on sharia [law],” according to a statement issued at the end of their Arab League meeting and published by Gulf News.

“Sharia has guaranteed human rights and preserved people’s lives, possessions, honour and dignity. The ministers consider the comments as irresponsible and unacceptable,” the statement said.

Sweden first signed a “memorandum of understanding” with Saudi Arabia in 2005, setting out details of cooperation on intelligence, surveillance and weapons manufacture, and paving the way for the sale of Saab’s Erieye radar system to the Saudis in 2010. The agreement had to be ratified by each side every five years, and its renewal date was due in May.

A sharp debate broke out in Sweden after three Social Democrat MPs called on the prime minister, Stefan Löfven, not to renew the memorandum, prompting a slew of business leaders to object that Sweden’s reputation as a trading partner was at stake. Jacob Wallenberg, scion of the family that owns stakes in companies representing some 40% of the Swedish stock exchange, said “credibility is fundamental” when Swedish companies did business abroad.

A spokesman for Saab said the company would continue to export radar equipment and sensors to Saudi Arabia, which “we are allowed to do by law” regardless of the agreement. “Saudi Arabia is an important customer and market for us,” he told the broadcaster SVT.

The European Union expressed regret on Tuesday that Sweden’s minister had been silenced due to her stance on human rights.

Asa Romson, deputy prime minister and member of the Green party, said: “This is a win for a clear foreign policy based on respect for human rights and a moral compass where this type of far-reaching military cooperation agreement simply does not fit.”

While politicians on the left welcomed the termination of the weapons agreement, conservative politicians accused Sweden’s ruling coalition of notching up a third foreign policy disaster after Israel shunned the country over its recognition of Palestine and Russia named Sweden as one of the architects of the Ukraine crisis. “It has become a red-green mess of Swedish foreign policy,” one MP said.

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