The deal was originally signed in 2015 under Spain's former conservative government, but the new center-left administration plans to return the 9.2 million euros ($10.6 million) already paid by the Saudis, AP reported.
A Spanish Defense Ministry spokeswoman who was not authorized to be identified by media confirmed the report, but declined to elaborate.
Rights groups have criticized Saudi airstrikes for killing civilians, including children.
The Saudi embassy in Madrid did not immediately respond to e-mailed questions.
People of Yemen have been under massive attacks by the Saudi-led coalition for over three years. Since March 2015, Saudi Arabia and some of its Arab allies have been carrying out airstrikes against the Houthi Ansarullah movement in an attempt to restore power to fugitive former president Abd Rabbuh Mansour Hadi, a close ally of Riyadh.
Over 15,000 Yemenis, including thousands of women and children, have lost their lives in the deadly military campaign.