Several hours after polls opened, the Islamic Action Front said it would not take part in what it called a "farce".
Earlier the IAF accused the authorities of bussing security force personnel to seats its candidates were contesting.
The desert kingdom is holding its first polls for city mayors, all of whom were previously appointed by the monarch, and municipal council members.
Correspondents say the Islamists' move throws into turmoil a vote that the government had portrayed as part of a democratic reform package.
"We can no longer take part in this farce and we announce the withdrawal of all our candidates from all governorates," the IAF said in a statement.
Government officials described the IAF move as "illegal" because election rules specify when it is legitimate to withdraw candidates.
The elections are the first to take place under new legislation that guarantees at least 20% of positions to women candidates.
Previously, half of all municipal council seats were appointed by the king and there was no quota system.
Under the latest reforms all councils are elected, apart from in the capital - where correspondents says a strong IAF showing had been expected.
Voters will elect half of
Almost 2m people had registered to vote, a figure described as "unprecedented" by the government.
Participation by young people had expected to increase after the voting age was lowered from 19 to 18.
PHOTO CAPTION
Jordanian election posters