A source close to the matter, who requested anonymity, said Meloni took the decision on Monday with her foreign and defence ministers, Antonio Tajani and Guido Crosetto, as well as Deputy Prime Minister Matteo Salvini.
Israel's foreign ministry played down the consequences.
"We have no security agreement with Italy. We have a memorandum of understanding from many years ago that has never contained any substantive content. This will not affect Israel's security," it said in a statement.
MELONI CHANGES TACK
Meloni has been in power since 2022 and will face a general election by late 2027.
"It's a repositioning," Lorenzo Castellani, political historian at Rome's Luiss University, told Reuters.
"She's afraid that a sizeable portion of the electorate, even among the centre-right, will become highly critical of Trump and Netanyahu and of the effects of this war on Iran on the economy," he added.
Italy's opposition parties had long called for a stop to the deal with Israel.
Signed in 2003 by the government of then Prime Minister Silvio Berlusconi, the memorandum entered into force in 2006 and was subject to automatic renewals every five years unless one of the parties withdraws.
It spans fields including procurement, training and the "import, export and transit of defence and military equipment".
As diplomatic tensions have risen, Rome last week summoned the Israeli ambassador to protest over the incident involving Italian troops in Lebanon. Then on Monday, the government of Prime Minister Benjamin Netanyahu summoned the Italian ambassador "to discuss the situation in Lebanon".
Reporting by Angelo Amante and Alvise Armellini; additional reporting by Alexander Cornwell, Nayera Abdallah and Maayan Lubell; editing by Barbara Lewis and Keith Weir