Spielberg, who set up the company with Jeffrey Katzenberg and David Geffen in 1994, recently partnered with India's Reliance BIG Entertainment in a $1.5 billion film deal. Geffen will not be joining the new company.
Under the termination agreement, the new DreamWorks will lead the development on several movies, with Paramount having the option to co-finance and co-distribute.
Paramount will retain development rights for all other projects, although Spielberg will continue to produce the Transformers series and three other Paramount films, including Stephen Sommers's When Worlds Collide remake.
Paramount CEO Brad Grey stated: "We have had a great run with the DreamWorks team both creatively and financially. In particular, it has been a true honour working closely with a storyteller of Steven's talent and stature."
Spielberg said: "Brad is a friend and I am pleased to be able to continue to work with him and his team, with whom we have shared many successes."
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