The Aquarius 2 migrant rescue ship, the last of its kind operating in the central Mediterranean trafficking route, was told by the Panama Maritime Authority (PMA) on Sunday that it will have its registration withdrawn.
The boat is currently at sea with 58 survivors on board.
The move ends all charity-run rescue missions off the Libyan coast unless the ship can find a new flag to sail under. It remains unclear where it intends to sail next.
SOS Mediterranee, one of the charities working on the Aquarius 2, said in a statement it was unhappy with the move and accused Panama of bowing to pressure from the Italian government.
"On Saturday, the Aquarius team was shocked to learn of an official communication from the Panamanian authorities stating that the Italian authorities had urged the PMA to take 'immediate action' against the Aquarius," it said.
SOS Mediterranee, along with Doctors Without Borders, the organisation operating the Aquarius 2 vessel, has called on European governments to either push the Panamanian authorities to reinstate the vessel's registration or to straight away issue a new flag under which it may sail.
Italy's Interior Minister Matteo Salvini, who has previously described the aid boats as a "taxi service" for migrants, denies his country put pressure on Panama, "I don't even know Panama's area code," he tweeted.
Salvini said on Sunday that Aquarius 2 had hindered the work of the Libyan coast guard, ignoring instructions.
He said that, according to newspapers, Aquarius 2 was about to have its registration revoked by Panama because it was “illegal and does not respect procedures”.
In and out of port - Summer 2018
Euronews' correspondent Anelise Borges was aboard the Aquarius in June. The ship carrying 629 migrants from Sudan and Bangladesh was denied entry to Italy by their new interior minister Matteo Salvini. It was also denied access to Malta.
The Spanish government offered the Aquarius the chance to dock in the port of Valencia, Spain, and the Italian navy offered full assistance and a marine escort for the trip.
Aquarius and its migrants arrived at the Spanish port of Valencia on 17 June.
Half of them opted to claim asylum in France, as France opened its doors to anyone from the Aquarius.
In August 2018, Spain refused entry to the vessel carrying 141 migrants from Eritrea and Somalia as Spain is not the closest safe port, as stipulated by international law.