A company statement announcing the decision did not say whether the company was shutting down permanently in Fiji, where an acquifer deep underground has been the source of one of the world's most popular bottled water brands.
The company, owned by California entrepreneurs Lynda and Stewart Resnick, said it was closing its facility in Fiji, canceling orders from suppliers and putting on hold several construction contracts in the country.
But the company wanted to keep operating in Fiji and was willing to hold discussions with the government about that, said the statement, issued from the company's headquarters in Los Angeles.
In the statement, Fiji Water president John Cochran said Fiji's government announced last week that it was imposing a new tax rate of 15 cents per liter on companies extracting more than 3.5 million liters (920,000 gallons) of water a month up from the current one-third of one percent rate. Fiji Water is the only company extracting that much water.
"This new tax is untenable and as a consequence, Fiji Water is left with no choice but to close our facility in Fiji," the company, which sells its bottled water in more than 40 countries, said.
The tax rise comes amid a deep downturn in Fiji's economy that is blamed on political instability following a coup in 2006 by armed forces chief Commodore Frank Bainimarama Fiji's fourth coup since 1987. Key trading partners have imposed various sanctions on the government, including European Union restrictions on the vital sugar industry.
Bainimarama's government has also taken a hard line with foreign companies. Rupert Murdoch's News Ltd. in September sold its controlling stake in Fiji's main daily newspaper after the government imposed strict new foreign ownership limits on media companies.
Bainimarama did not immediately comment on Fiji Water's statement.
Cochran said Fiji Water was the only company that would be affected by the tax increase.
The government's action "sends a clear and unmistakable message to businesses operating in Fiji or looking to invest there: the country is increasingly unstable, and is becoming a very risky place in which to invest," Cochran's statement said.
He said Fiji Water remained "willing to work through this issue with the Fiji Government, as it would be our preference to keep operating in Fiji."
Fiji Water is a well known brand of bottled water, sold in several dozen countries including the United States where it is one of the top 10 bottled waters.
The Resnick's Roll International Corp. bought Fiji Water in 2004 for an undisclosed sum from Canadian billionaire David Gilmour, a resort owner who founded the water company in 1996. The company has sought to stay clear of Fiji's volatile politics, but recently became embroiled in a dispute between Bainimarama and his deputy.
Earlier this month, Fiji Water executive David Roth was deported from Fiji to the United States for what the government said was acting "in a manner prejudicial to good governance and public order."
The deportation caused Acting Prime Minister Ratu Epeli Ganilau, who was also Minister for Defense, Immigration and National Security, to resign. Ganilau, a highly regarded official and traditional chief, had refused to issue the removal order against Roth.
Bainimarama issued the deportation order from China, saying it was based on reliable information verified and confirmed by relevant authorities.
"It is unfortunate that David Roth saw it fit to engage in activities outside of his work permit conditions," Bainimarama said in a statement at the time, without giving details.
Bainimarama said the decision to deport Roth would not affect the government's positive attitude toward overseas investors but that Fiji would not tolerate foreigners interfering in its domestic affairs.
Fiji Water's Director of Operations Anna Morris said at the time the company had no comment on the deportation.
Fiji Water trades on its product's purity. The company says its water comes from an artesian spring deep underground in Fiji and that the water never comes into contact with the air before it is bottled, making it clear of pollutants.
The water comes from the remote Yaqara Valley on Fiji's main island of Viti Levu, where the company also has its bottling plant.
Cochran said Fiji Water currently pays millions of dollars in duties and income tax, as well as substantial royalties and trust fund payments to Fijian villages near the company's facility. He said hundreds of Fijians would lose their jobs because of Monday's decision.