Foreign Minister Masahiko Koumura told reporters: 'Japan has to show its stance and, at this point in time, we cannot be taking any action that in fact supports the military junta.'
The Japanese decision, which had been under consideration for some time, came after the United Nations Security Council issued a presidential statement deploring the Myanmar crackdown.
Tokyo's position hardened after Japanese photojournalist Kenji Nagai was fatally shot by troops on Sept 27 as he was trying to film the demonstrations.
Last Saturday, a column in a newspaper published by the military junta said Mr Nagai 'had entered the country on a tourist visa and should not have been doing reporting work'.
The column, penned by a writer believed to be close to the junta, said troops had no way of telling if he was a participant in the protests or a journalist, and that the shooting was an accident.
'Mr Nagai was at a place where he should not have been, at a time when he should not have been there,' said the writer.
The human resources centre, which was to be located within the campus of a Yangon university, was supposed to facilitate the teaching of Japanese language classes and courses on the Japanese economy and business management.
The 552 million yen is part of the aid provided to Myanmar, most of which is for humanitarian purposes. For example, Japan will continue to provide aid such as polio vaccines.
Last year, Japan gave Myanmar 1.3 billion yen in grant aid as well as 1.7 billion yen in technical assistance.
Over the past five years, Japanese grant aid to Myanmar has largely been used for a project to prevent further deforestation, scholarships for Myanmar students to study in Japanese graduate schools and a programme to reduce Myanmar's infant mortality rate.
Japan has not given Myanmar any yen loans since the military seized power in the 1988 coup.
The Japanese Foreign Ministry has indicated that it would continue to review all proposed aid programmes for Myanmar, with a view to ending or suspending those not immediately required.