The problem is thought to have arisen because Saatchis has the global Sony Ericsson business. Sony Ericsson and LG compete in the mobile phones sector.
The agency's exit leaves Publicis and Omnicom's Agency.com to battle for the $100 million assignment. Final presentations take place this week at LG's headquarters in Seoul, South Korea.
Meanwhile, DDB and Bartle Bogle Hegarty are in contention for the creative assignment on LG's mobile phones.