"The President of the Republic declared that , despite the prospect of a ceasefire, the conditions for France to deliver the first warship are not in place to date", François Hollande's office said on Wednesday.
The statement came just hours after Russian President Vladimir Putin called for a cease fire between pro-Kremlin rebels and Ukrainian government forces and just on the eve of a major Nato summit in Wales.
While French leaders were reluctant to back down on these crucial sales in a period of record unemployment, a Nato spokesman said on Thursday it " was confident that France would take into account the security situation".
The sharpest criticisms came from Front National Euro MP Marine Le Pen, "It is a very serious decision because it shows our submission to American diplomacy", she said Thursday morning on RTL radio.
"It is on Barack Obama's request that François Hollande made this decision", she added.
A french diplomatic source said that the contract is only suspended until November when the delivery is due, but that construction has not stopped.
"At that date, we will see what the financial consequences are" said the source to the French news agency AFP, as the suspension of the deal "could cost us one billions euros".
The concern in France is also that the country will not only lose the receipts from the sale, but its credibility as a weapons exporter will be compromised.
The suspension could also have a major impact on jobs at the STX dockyards in Saint-Nazaire were the ships are being built.
Unions said they were stupefied by the decision since the first warship was almost finished.
Two demonstrations have been called for Sunday in the Saint-Nazaire's harbour. One opposed to the delivery of warships to Russia, one opposed to the suspension of the delivery.
France agreed in 2011 to build and sell the two helicopter assault ships to Russia for 1.6 billion euros, with a first delivery in automn 2014 and the second in 2015.
Since July 2014, 400 Russian sailors have been training in Saint-Nazaire - western France - on the operations of the first warship "Vladivostok".