US pharmaceutical giant Pfizer said Wednesday it was abandoning plans for a $160 billion merger with Allergan, citing new US rules cracking down on tie ups aimed at saving on taxes.

The deal with the Irish-based firm would have created the world's largest pharmaceutical company.

Pfizer said in a statement the two companies "terminated by mutual agreement" plans to merge.

"Pfizer approached this transaction from a position of strength and viewed the potential combination as an accelerator of existing strategies," said company chairman and CEO Ian Read.

Pfizer also agreed to pay Allergan $150 million to reimburse its expenses linked to the planned merger.

The decision to call off the merger came after the US Treasury Department announced new rules to discourage mergers between US and foreign businesses designed to sharply lower the US company's tax bill.

The New York-based pharmaceutical said it remains on track to report its 2016 first quarter earnings on May 3.

For all of 2015, Pfizer reported earnings of $7.7 billion, down 15.2 percent from 2014. Revenues dipped 1.5 percent to $48.9 billion.

Allergan CEO Brent Saunders said in a separate statement that while he is "disappointed" that the merger will not proceed, his company is nevertheless "poised to deliver strong, sustainable growth built on a set of powerful attributes."

US President Barack Obama did not comment directly on the issue, but on Tuesday he said wealthy corporations and individuals are "gaming they system" by using tax code loopholes that average taxpayers cannot access.

Obama spoke a day after the US Treasury tightened rules against tax "inversion" deals, in which US companies merge with foreign firms to move their official address offshore -- but not their US operations -- to avoid paying US taxes.

His comments also came days after documents leaked from a Panama law firm showed tens of thousands of anonymous companies could have been used to hide income for wealthy individuals from around the world.

"I am very pleased that the Treasury Department has taken new action to prevent more corporations from taking advantage of one of the most insidious tax loopholes out there, and fleeing the country just to get out of paying their taxes," Obama said.

"When companies exploit loopholes like this, it makes it harder to invest in the things that are going to keep America’s economy going strong for future generations."