The leading Brazilian daily O Estado de Sao Paulo said the decision has been prompted by a $30 billion budget slash. It cited four unnamed government ministers as saying that President Dilma Rousseff saw "no climate" for the much-vaunted and controversial purchase, in 2011.
The deal is just the first of a slew of tenders Rousseff was expected to oversee in her term amid plans by Brazil to spend billions on imported weapons in the next years to increase its military might.
Brazil has delayed picking the winner of an international fighter jet tender for months.
The foreign aerospace giants competing for the sale to Brazil of 36 combat aircraft are France's Dassault with its Rafale fighter, Sweden's Saab with the Gripen NG aircraft and U.S. company Boeing with the F/A-18 Super Hornet.
O Estado de Sao Paulo reported that Rousseff met for more than three hours with Defense Minister Nelson Jobim last week to "discuss the budget restrictions."
"While he told reporters that the pending deal would not be impacted by the cuts," the daily reported, "he also said that there were no budget expenditures this year for the fighter contract."
Defense experts have said that the deal is estimated to be worth $4 billion-$7 billion, depending on details of the order to be agreed upon.
Jobim was also quoted to have said that the military would take its time in choosing the best possible candidate, while negotiations on technical matters and terms of the deal would lead to a final decision by the end of the year.
A decision was expected to have been taken ahead of last year's election but was deferred until after the polls. The pick has been on hold since March.
The political leadership has reportedly shown a clear preference of the French bid, although the military brass has sided by the more affordable Swedish option.
What makes the French bid attractive, experts say, is France's sweetener of transferring technology related to the supersonic Rafale so Brazil, bent on becoming the lead military power in South America, could assemble the jets itself and sell them regionally.
Brazil has already signed a deal with the French for the construction of five submarines in Brazil. The deal includes building a nuclear-powered vessel.
Last week, U.S. defense department officials pushed for the U.S. pick, advising Brazil that it would receive significant technology transfer if it chose U.S.-made fighter jets.