The company said in a statement on Monday: "Further to its announcement of November 18, 2009, Ferrero International SA confirms that it does not intend to make an offer for Cadbury."
Ferrero had reportedly been considering a rival joint bid with America's Hershey for the British chocolate maker which was being stalked by Kraft Foods for acquisition.
Last week, Hershey too had withdrawn from the race for Cadbury.
Hershey and Ferrero, who had announced their interest in acquiring Cadbury in mid-November, had until January 25 to come up with a fully financed bid or withdraw from the race.
The way is now clear for Kraft to acquire the British company by carrying through its cash-and-shares bid of $18.9bn that valued Cadbury shares at 840p each. It has until February 2 to convince the Cadbury shareholders to accept its proposed takeover.