The announcement comes just six weeks after the firms admitted they would not meet an initial deadline to complete the merger by the start of November.
Talks on the link-up had been taking place for more than a year although a formal announcement that it was going ahead was only made in August.
But in a joint statement released yesterday the firms said: "Kennedys and Simpson & Marwick advise that the two firms no longer intend to merge.
"Both firms and their partners hold each other in the highest regard and are very disappointed that for complex reasons the merger could not be finalised."
The firms are believed to share a number of clients which had been hoping to get a one-stop service for their legal provision.
The statement added: "Clients and their interests are our priority.
"There are a number of cross Border clients that Kennedys and Simpson & Marwick plan to continue working closely with in order to provide a UK wide service."
The collapse of the deal comes in spite of documents being lodged at Companies House showing Kennedys Simpson & Marwick LLP was registered as a new business based in Edinburgh in September this year.
Although both firms refused to elaborate on why the agreement fell apart regulatory issues may have been one impediment.
London-based Kennedys operates under an alternative business structure allowing it to bring in external investment and appoint non-lawyers as partners.
A similar framework has not yet been introduced in Scotland in spite of proposals being under consideration for several years.
Simpson & Marwick, which was founded in 1886, has more than 30 partners, specialises in insurance work and has offices in Edinburgh, Aberdeen, Glasgow, Dundee, North Berwick, Newcastle and London.
Kennedys has nine UK offices, although none in Scotland, and 10 abroad in locations such as the US, Spain, Dubai, Belgium and Australia.