The decision follows the postponement of a brand campaign it presented when it pitched and Harrods' failure to approve creative work.
The store's commercial promoting its annual sale was a remake of an old Leagas Delaney ad, produced in-house.
M&C Saatchi won the account, said to be worth £2 million, in August last year after a final shoot-out against JWT.
Its appointment was expected to herald a TV and press campaign to make Harrods more top-of-mind with affluent London shoppers.
Since then, Richard Simonin, the managing director of Harrods, and Anne-Marie Verdin, the marketing and communications officer, who were responsible for appointing the agency, have both left.