Academy appointments are for life, and until this week, the organization's rules did not provide for resignations; members who quit were treated as merely inactive, but could not be replaced.
About the same week next year that the Swedish Academy will announce two Nobel Literature Prize winners, the Norwegian Nobel Committee, a separate body, will announce who gets the coveted Nobel Peace Prize for 2019.
It says work on the selection of a laureate will continue as usual, but the academy needs time to regain confidence before the next victor is announced.
A number of members of the academy have left in protest.
This happens to be the first time that the award would be cancelled for political reasons. No worthy victor was found in 1935.
In November, divisions began to emerge when Jean-Claude Arnault, who ran a cultural project with funding from the Swedish Academy, was accused of sexual assault by 18 women. Tied in second place are the United States and Britain with 12 laureates each, including last year's victor, Japanese-born British author Kazuo Ishiguro, author of "Remains of the Day" and "Never Let Me Go". He denies the allegations, but the academy has apologized for ignoring a past complaint. When its permanent secretary Sara Danius ordered a probe, she was eased out of her position, which triggered a fresh round of anger.
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Only 11 members are now in place. It was not until 27 years later - in 2016 - that the Academy finally condemned the fatwa against Rushdie.
Arnault was accused of groping Crown Princess Victoria, the heir to the Swedish throne. "This decision shows that the Academy now intends to focus on restoring its reputation", he said in a statement. The academy will instead declare two winners in 2019. For example, American playwright Eugene O'Neill was given the 1936 award in 1937.
It is believed the #MeToo marketing campaign in Hollywood, which highlighted the prevalence of sexual assault within the film business, performed an element within the resolution. It would have been hard for potential winners to accept the prize with the academy in such turmoil.
However, the statement issued by the Swedish Academy, says that the decision was taken "in view of the now diminished Academy and the reduced public confidence in the Academy". "We have decided not to award a prize after long and intense discussions". The Royal Swedish Academy of Sciences awards the prizes for physics, chemistry and economics, while the Nobel Assembly awards the medicine prize.
Last year's recipient of the Nobel Prize in literature was Japan-born British novelist Kazuo Ishiguro, author of the 1989 Man Booker Prize-winning "The Remains of the Day". The victor receives a gold medal, a diploma and a cash sum based on the Nobel Foundation's income for the year.