Economics Minister Sigmar Gabriel withdrew Rheinmetall's authorization to deliver the final parts of a field-exercise simulator. The action exceeds European Union sanctions on Russia, announced last week, which do not apply to existing contracts.
Rheinmetall is among Germany's leading defense contractors, and the simulator was scheduled to be in use by the Russian military by the autumn. The German government said the training center, with the capacity to train 30,000 soldiers, could not function without the parts.
"You can see from our decision that the German government follows a very clear course that we, of course, consider to be right," said Tanja Alemany, an Economics Ministry spokeswoman.
The halt to the contract will cost the German economy about 123 million euros ($165 million), the Economics ministry said.
Alemany did not address a suggestion that the move by Germany could be regarded as a criticism of other EU countries for its slow pace in agreeing to sanctions. The blocking of the delivery could be seen as an affront to France, which is continuing to build two Mistral-class helicopter-carrying warships for Russia, despite the sanctions.
Germany suspended the contract for equipping the Russian training center in March, after Russia annexed Crimea. The move Monday makes the suspension permanent, and further strains ties between Moscow and Berlin.
Germany was also slow to support additional sanctions against Russia, but saw its patience exhausted by delays in investigation of the crash of Malaysia Airlines Flight 17 in July.
"If the lesson in Europe is that you can instigate a civil war in a neighboring country and nothing happens, I think that would set us back decades, and cost much more," Gabriel told the German television channel ZDF Sunday.