Switzerland has cancelled the planned sale of 93 used army tanks to Chile, arguing the deal is not worth the financial effort.
The defence ministry also said it intended to redefine its policy on selling used war material.
In a statement on Sunday, the ministry confirmed that it was pulling out of the sale of the Leopard II tanks after taking a close look at the costs and benefits.
It commented that the offer made to Chile in April had included the necessary equipment for training and maintenance as well as logistics material.
Costs would also be incurred in services attached to the sale extending over several years and involving considerable army staff resources.
The ministry is to study the sale of used war material in more detail with a general cost-benefit analysis before passing its findings to an interdepartmental working group looking into such exports.
It noted that used war material should first and foremost be sold or handed back to its country of origin, or failing that be recycled in Switzerland.
The decision only concerns planned export sales of used army material and does not apply to other arms, for example from private companies, or deals that have already been struck.
In a reaction, the Group for Switzerland without an Army described the ministry's proposals as "cheating" to fend off criticism and continue to export war material.
A statement said there were still no guarantees that used war material from Switzerland would not end up in countries involved in conflict.
It suggested simply destroying used war material in Switzerland.
In a related development, ministry spokesman Philippe Zahno declined to comment on a planned deal with Pakistan.
The foreign policy commission of the House of Representatives has severely criticised a plan to sell 736 M113 personnel carriers to the country.
It has called on the government not to go ahead, arguing that such a sale could harm Switzerland's image, notably because of the human rights situation in Pakistan.
In October the United Arab Emirates called off a controversial purchase from Switzerland of 180 M113s, which were destined to travel on to Iraq.
UAE authorities argued they could no longer wait for the delivery of the vehicles.
In August the Swiss cabinet suspended the sale, worth SFr12 million ($9.3 million), amid a row over how the tanks would eventually be used.
swissinfo with agencies
In Switzerland war material is subject to a law which forbids any sale to countries involved in conflict.
Between now and 2010, the Swiss army is to liquidate material valued at SFr10 billion ($7.6 billion), including 1,200 M109 and M113 armoured personnel carriers.
Switzerland has recently considered selling tanks to Iraq and Pakistan, anti-air defence systems to India and maintenance services for missiles in South Korea.