General Motors broke the news to the federal, Victorian and South Australian governments early this afternoon.
The nearly 3000 Holden workers to be directly hit by the pullout were to be told this afternoon, as unions warned General Motors' decision would cost 50,000 jobs in the auto sector.
Rival carmaker Toyota also warned GM Holden's decision would put "unprecedented" pressure on its own ability to build cars in Australia.
Acting Prime Minister Warren Truss, who took a phone call from Holden boss Mike Devereux 10 minutes before question time, said he regretted the decision by a company that had become part of Australia's heritage.
"This is a difficult day for Australians, a difficult day particularly for the Holden employees,'' he said.
Victorian Premier Denis Napthine also told state parliament: "This is a very, very sad day for Australia and Victoria.''
Holden said its decision to end manufacturing in Australia reflected a "perfect storm'' of negative influences faced by the car industry, including the Australian dollar, the high cost of production, the small domestic market and "arguably the most competitive and fragmented auto market in the world''.
"Building cars in this country is just not sustainable,'' Mr Devereux later told a press conference in Adelaide.
IN PICTURES: Holden through the ages
The announcement comes after a week of intense speculation on the carmaker's future and reports that the US-based General Motors had already made a decision to quit the country as part of a global restructure.
Mr Truss yesterday fired off a letter to Mr Devereux demanding an announcement on Holden's future.
Mr Devereux called him back today.
"He informed me of the company's decision made in Detroit that they would be closing their operation, or a significant part of their operation in Australia and New Zealand, by the end of 2017,'' Mr Truss told parliament.
"Holden has been an iconic national brand for Australians, a part of our heritage,'' he said.
He said the government had wanted Holden to remain manufacturing cars in Australia, and a manufacturing sector that was strong and ``able to stand on its own feet''.
In a statement, General Motors said it would end manufacturing and transition to a "national sales company'' in Australia and New Zealand.
The company also said it would discontinue vehicle and engine manufacturing and significantly reduce its engineering operations in Australia by the end of 2017.
"We are completely dedicated to strengthening our global operations while meeting the needs of our customers,'' said GM Chairman and CEO Dan Akerson.
"The decision to end manufacturing in Australia reflects the perfect storm of negative influences the automotive industry faces in the country, including the sustained strength of the Australian dollar, high cost of production, small domestic market and arguably the most competitive and fragmented auto market in the world.''
Mr Devereux told reporters the decision to end carmaking "is nothing but the current realities of our business".
``It doesn't make long term sense for us to continue assembling vehicles in Australia.''
He denied he had misled the Productivity Commission when giving evidence at the inquiry yesterday, saying he was informed by General Motors leadership during a teleconference later in the afternoon that a decision had been made to exit manufacturing.
Industry Minister Ian Macfarlane said he was disappointed Holden had not waited until the Productivity Commission had completed its assessment of the Australian car industry.
South Australian Premier Jay Weatherill said Holden's decision was a black day for his state.
He also accused the Abbott government of failing to support the company.
"Tony Abbott and his Coalition government have turned their backs on this industry and the people in it,'' he said.
The restructure will affect 2900 positions over the next four years, comprising 1600 from the Elizabeth vehicle manufacturing plant in South Australia and approximately 1300 from Holden's Victorian workforce.
The Australian Manufacturing Workers Union said Holden's withdrawal will lead to 50,000 job losses and a $21 billion hole punched in the economy.
"It's now highly likely that Toyota will leave Australia. In fact it's almost certain,'' AMWU national vehicles division secretary Dave Smith told reporters outside Holden's head office in Melbourne.
"Fifty thousand workers will be losing their job because of this decision by General Motors today.''
The AMWU blamed the shutdown on the Coalition's lack of commitment to the car industry.
Toyota said it would have to determine whether it could continue operating in Australia.
"This will place unprecedented pressure on the local supplier network and our ability to build cars in Australia,'' Toyota Australia said in a statement.
"We will now work with our suppliers, key stakeholders and the government to determine our next steps and whether we can continue operating as the sole vehicle manufacturer in Australia.''
Mr Truss said the government stood ready to assist Holden's workers as they considered their future.
"We will do what we can with General Motors to achieve the very best possible outcomes for these people,'' he said.
"This is a difficult day for Australians, a difficult day particularly for Holden employees, and we will stand with them to work constructively to make sure that they can transition into good jobs in other parts of our industry.''
Holden said it would continue to have a significant presence in Australia beyond 2017, comprising a national sales company, a national parts distribution centre and a global design studio.
Mr Devereux said an important priority over the next four years would be to ensure the best possible transition for workers in South Australia and Victoria.
"This has been a difficult decision given Holden's long and proud history of building vehicles in Australia,'' said Mr Devereux. ``We are dedicated to working with our teams, unions and the local communities, along with the federal and state governments, to support our people.''
The sale and service of Holden vehicles would be unaffected by the announcement and would continue through the extensive network of Holden dealers across Australia and New Zealand. Warranty terms and spare parts availability will remain unchanged.
"GM remains committed to the automotive industry in Australia and New Zealand. We recognise the need for change and understand the government's point of view,'' Holden said.
Treasurer Joe Hockey said the federal government would do all it could to ensure Holden's decision did not lead to a significant economic downturn in South Australia or Victoria.
"We will do everything we can to assist during this transition,'' he told parliament.
Mr Hockey said Holden's decision was not a surprise, despite the ``enormous'' financial support given to the car industry over the years.
Mr Truss said while he regretted Holden's decision, the company had at least delivered certainty.
"And in particular, certainty to their employees,'' Mr Truss said.
He said the government would try help make the transition as smooth as possible.
"The reality is we must face the situation as it is now and get on with helping the Holden workers to make a transition and the economy of South Australia to move into new areas where it can prosper,'' he said.
In the Senate, Labor's upper house leader Penny Wong described the government Senate leader Eric Abetz as a disgrace for suggesting families affected by Holden redundancies would welcome a $500 Christmas present in the form of the passage of the carbon tax repeal bill.
Labor senator Kim Carr shouted across the chamber, "are you proud of yourself?''