Industry and Energy Minister Viktor Khristenko said the decision was a sign that Europe did not want to let Russian companies onto its markets.
Parliamentary speaker Boris Gryzlov said Russia is being contained abroad because of the competitiveness of its industry.
Severstal said it was "very surprised" by Arcelor's decision.
The merger between Arcelor and Indian-owned Mittal, the world's leading steelmaker, will create a new global giant responsible for about 10 percent of the world's steel production.
"We should focus on what is good for all stakeholders and I'm delighted that is where we ended up," Mittal CEO Lakshmi Mittal told journalists today. "I'm not only proud at what we achieved with the formation of this company, but completely convinced it will be a European leader of which all European stakeholders can be proud."
Arcelor will reportedly have to pay Severstal about $176 million for pulling out of the planned deal.