The Swedish Academy has been in crisis over its handling of allegations against the husband of a member.
She has since quit, as have the academy's head and four other members.
The academy says it will now announce the 2018 winner along with the 2019 winner next year.
The scandal is the biggest to hit the prize since it was first awarded in 1901.
The academy said the decision had been made due to a lack of public confidence.
Some academy members had argued that the prize should proceed to protect the tradition, but others said the institution was in no state to present the award.
Apart from six years during the world wars, there has been only one year when the prize was not awarded. No worthy winner was found in 1935.
What sparked the crisis?
Divisions started to emerge last November when French photographer Jean-Claude Arnault, who ran a cultural project with funding from the Swedish Academy, was accused by 18 women of sexual assault.
Several of the alleged incidents reportedly happened in properties belonging to the academy. Mr Arnault denies the allegations.
The organisation later voted against removing Mr Arnault's wife, the poet and writer Katarina Frostenson, from its committee.
This, along with accusations of conflict of interest and the leaking of Nobel winners' names, divided the organisation.
What followed was a wave of resignations, including Ms Frostenson and the head of the academy, Prof Sara Danius.
Only 11 members are now in place. Of those, one, Kerstin Ekman, has been inactive since 1989, when the academy refused to condemn the fatwa issued over Salman Rushdie's The Satanic Verses.
Statutes require a quorum of 12 to vote in any new members.
Technically, members are appointed for life to the Swedish Academy and cannot resign, although they can refuse to take part. Academy patron King Carl XVI Gustaf has said he will change the rules to allow them to quit formally.
So what happens next?
Two prizes for literature will now be announced in 2019.
This is not the first time this has happened. For example, no prize was awarded in 1936, but the prize for that year was awarded a year later to American playwright Eugene O'Neill.
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