It had reportedly pledged around $600,000 to the miniseries on the assumption that the lead character, an Australian police officer, would be played by an Australian actress.
An ABC spokesman told the 'Herald Sun': "We went into this with the understanding the lead actor would be an Australian. But when that could not happen, we removed ourselves from the deal."
The spokesman added, "We love Elisabeth Moss, but she's not an Australian. We have a fine calibre of Australian actors available and we would have preferred to see one of them in the role."
Filming is due to start on 'Top of the Lake' in New Zealand in February. The six-hour mini series, which is a BBC Worldwide and Sundance Channel coproduction, reunites actress Holly Hunter and director Jane Campion, both of whom won Oscars for their work on 'The Piano.'
Simon Whipp, director of the Actors Equity Foundation, applauded ABC for taking a stand: "To cast an American in this is a really disappointing decision," he said. "I find it hard to believe they could not find a suitable performer in Australia or New Zealand, in their 20-30s, to perform this."
'Top of the Lake' follows Moss' character, detective Robin Griffiths, as she investigates the disappearance of a pregnant 12-year old named Tui. Other non-antipodean actors have also been cast in pivotal roles, with Scottish actor Peter Mullan ('War Horse,' 'The Magdalene Sisters') taking on the role of Tui's drug-dealing father, and Hunter playing a guru at a local women's camp.
However, other roles in the ensemble cast have been filled by Australian actors such as 'Lord of the Rings' star David Wenham. Screen Australia, which has contributed more than $1.1 million, told the 'Herald Sun' it's disappointed that ABC pulled out, as the series will employ many Australians. UKTV has contributed the shortfall left by ABC's withdrawal.
'Top of the Lake' marks Campion's first project in her native New Zealand for many years. She co-wrote the drama with Gerard Lee ('Sweetie') and said in a statement "I am in love with the intense beauty of southern most New Zealand and am excited to be setting a story in this end of the world paradise. To be able to tell the story over six hours gives myself and my brilliant team a chance to make something truly absorbing and memorable."
It will be produced by Emile Sherman and Iain Canning's See-Saw Films ('The Kings Speech') and directed by up and comer Garth Davis ('Love My Way').
Follow Catherine on Twitter.