The UK is withholding £21 million of aid earmarked for Rwanda amid concerns that the state is supporting rebels in the Democratic Republic of Congo (DRC).
International Development Secretary Justine Greening said the money, which was due to be handed over next month, would not be released because president Paul Kagame's regime had breached agreements.
"The government has already set out its concerns over credible and compelling reports of Rwandan involvement with M23 in DRC," she said.
"This evidence constitutes a breach of the partnership principles set out in the Memorandum of Understanding and, as a result, I have decided not to release the next payment of budget support to Rwanda."
Violence in DRC has been spiralling, with reports of summary executions by the rebel M23 group and growing numbers of refugees.
The UK suspended the last tranche of £16m of aid in July after an interim UN report highlighted Rwanda's role in backing the insurgents.
However, Ms Greening's predecessor, Andrew Mitchell, controversially reinstated the aid on his last day in the job. He authorised £8m as direct budgetary support, and diverted the other half to specific development programmes.
Pressure to halt the aid payments again intensified earlier this month when UN experts presented more evidence of Rwanda's involvement in fuelling the conflict.
Ms Greening also said that DfID will provide a further £18m of immediate humanitarian support in DRC, providing emergency food for 100,000 people, clean water and education.
The prime minister's spokesman denied that the decision to reinstate aid in September had been a mistake.
"We stand by the decision that we made to release the last tranche of funding," he said.
"This is our approach to the aid budget. We keep decisions under review."
The spokesman said Mr Mitchell had taken the decision to hand over the previous tranche, but stressed that other ministers agreed.
"It was his decision but it was also a government decision," he said.
Mr Cameron raised concerns with Mr Kagame when he spoke to him by telephone a few weeks ago, according to No 10.
Asked if the premier stood by his previous praise of Rwanda as a "success story", the spokesman said: "There has been progress made in that country. This decision is about aid spending."
TaxPayers' Alliance campaign manager Robert Oxley said: "It's appalling that British taxpayers' money has gone directly to a government involved in a proxy war that has brought untold misery to hundreds of thousands of people.
"This announcement leaves a huge question mark over why DfID, and specifically Andrew Mitchell, reinstated the aid programme to the Rwandan government which was fanning the flames of conflict in DRC.
"Justine Greening must urgently re-examine our aid policy. It is wrong to keep increasing DfID's budget in pursuit of an arbitrary spending target when it cannot be trusted with the significant amount of money taxpayers already hand over."