Sweden is cancelling a controversial military deal with Saudi Arabia a day after an unusually frank diplomatic bust-up between the two countries over human rights.

Government officials in Stockholm said that Sweden would not prolong an arms and training deal that had threatened to tear apart the centre-left coalition in the country.

Swedish business leaders, including dozens of prominent chief executives and chairmen, had publicly lobbied for the deal to be extended, arguing that contracts worth billions of krone with Saudi Arabia could be at risk. […]