The announcement comes a day after Doctors Without Borders (MSF) said it was halting the use of its largest boat in the area because of an “increasingly hostile environment for lifesaving rescue operations”.
In a statement, Sea Eye said it was with “a heavy heart” that it had decided to follow suit following the Libyan government's “explicit threat against the private NGOs”.
Tensions have been on the rise since the Libyan navy on Thursday ordered foreign vessels to stay out of a coastal search and rescue zone, a measure it said was specifically aimed at non-governmental groups.
Libyan authorities have accused charities of aiding human smugglers with their rescues at sea, hampering efforts to crack down on the illegal migration route.
“Under these circumstances, a continuation of our rescue work is not currently possible. It would be irresponsible towards our crews,” Sea Eye founder Michael Buschheuer said.
Italy, which has borne the brunt of Europe's migrant crisis this year, has also moved to rein in NGOs helping the multinational search and rescue operation by making them sign up to a new code of conduct.
Sea Eye said it would continue to monitor the “changed security situation” off the Libyan coast.
“We leave behind a deadly gap in the Mediterranean,” Buschheuer warned.
Six years since a revolution that toppled longtime dictator Moamer Kadhafi, Libya has become a key departure point for migrants risking their lives to cross the Mediterranean to Europe.
Tens of thousands of migrants have resorted to paying people traffickers for the journey, often on overcrowded and unseaworthy boats.
Migrant aid ships have played a key role in assisting the rescue operations, and Sea Eye says it has helped save some 12,000 lives since April 2016.