NLWA covers seven boroughs and had named Veolia as one of the shortlisted companies for the contract, which is reportedly worth up to £4 billion over 25 years.
Veolia has given no reason for the withdrawal, which was announced on Friday, and a spokesman said the company would not comment.
Clyde Loakes, NLWA chair, said the decision to pull out was “disappointing”.
The Palestine Solidarity Campaign welcomed Veolia’s departure from the process, claiming the company’s links to Israel were “toxic”.