Norway, which has hosted the Games twice and won more Winter Games medals than any other nation, will quit the race after the ruling Conservative and Progress parties both declined support, asking the government to stop the application.
"We've received clear advice and there is no reason not to follow this advice," Conservative Prime Minister Erna Solberg said. "A big project like this, which is so expensive, requires broad popular support and there isn't enough support for it."
This year's Sochi Olympics cost a record $51 billion, and while Norway promised an event a tenth of that figure, campaigners could not rally enough support in part due to fears that the cost of hosting the Games would balloon.
"The Conservative Party MPs are divided and cannot advise the government to go ahead with the Olympics. We therefore asked the government to halt the application process," Conservative MP Trond Helleland said.
The International Olympic Committee called Oslo's withdrawal a missed opportunity for the country, its people and the athletes.
"This is a missed opportunity for the city of Oslo and for all the people of Norway who are known worldwide for being huge fans of winter sports," said IOC Executive Director for the Games Christoph Dubi in a statement.
"And it is mostly a missed opportunity for the outstanding Norwegian athletes who will not be able to reach new Olympic heights in their home country."
He said Norway's political leaders appeared to have not been briefed properly on the process and made a decision based on "half-truths and factual inaccuracies".
"Earlier this year the Norwegian bid team asked for a meeting with the IOC for an explanation of all aspects of the IOC requirements, including the financial details, and the IOC arranged this for all three bid cities in order to ensure fair play amongst the three bids," Dubi said.
"Unfortunately, Oslo sent neither a senior member of the bid team nor a government official to this meeting. For this reason senior politicians in Norway appear not to have been properly briefed on the process and were left to take their decisions on the basis of half-truths and factual inaccuracies."
Stockholm in Sweden, Krakow in Poland, and Ukraine's Lviv have all previously pulled out of the bidding process. Switzerland's St Moritz and Germany's Munich briefly considered a run for the 2022 Games before financial concerns and local opposition led to them dropping their plans.
Oslo city council immediately said it was withdrawing its application for a state guarantee to host the Games, as it no longer saw a realistic chance of parliament backing the application.
(Reporting by Terje Solsvik, Additional reporting by Karolos Grohmann)
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