The state-owned China General Nuclear (CGN) held a 20 per cent stake in the project, which is intended to provide low-carbon power to 6 million homes over more than 50 years.
Downing Street refused to confirm the size of the payment to CGN, but a government source said that it allowed for the agency's "exit from the project, including buy-out costs, any tax due and commercial arrangements".
The move follows Rishi Sunak's declaration on Monday that the "golden era" of closer ties with China is over. CGN's involvement in Sizewell, alongside French company EDF, was negotiated under David Cameron and George Osborne's drive to attract Chinese investment to the UK.
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