The German utility said it made the decision after recognising the "significant technical challenges specific to the zone" and comparing it with the viability of other UK offshore projects.
UK sea bed manager the Crown Estate said it has accepted RWE's request to terminate its development agreement for the Round 3 project.
RWE has faced a number of problems with Atlantic Array during its early development phase. It originally envisaged installing 417 turbines in the Bristol Channel.
However, in March it said this had been capped at 278 following environmental studies. At the time, it hoped to reach the 1.5GW through the use of larger turbines. Then in June it made a further reduction to 1.2GW.
Speaking about the decision, RWE director of offshore wind energy Paul Cowling said: "This is not a decision we have taken lightly, however, given the technological challenges and market conditions, now is not the right time for RWE to continue to progress with this project.
"We will continue to focus on the other, less technically challenging, offshore projects within our extensive offshore pipeline of up to 5.2GW."
The Crown Estate's head of offshore wind Huub den Rooijen claimed there would be a benefit from RWE's decision.
He said: "Paradoxically, this is a positive development because it provides greater clarity to key stakeholders such as supply chain and consenting bodies, and brings greater focus to the investment opportunities."