Cyprus Airways has shut down after the EU Commission ordered it to repay over 65 million euros in illegal state aid.
The Cypriot government, which owns 93 per cent of the airline, had broken regulations on state support for struggling companies, the commission said.
Under EU rules, a company can only receive state assistance once every ten years, to prevent firms from relying on government support. Cyprus Airlines was bailed out in 2007.
EU competition Commissioner Margrethe Vestager said the struggling airline had received "large quantities of public money" over the past six years but is still unable to be financially viable without continued state support.
Cyprus' finance minister Harris Georgiades said the government will fully cover the cost of alternative flights for passengers who had already booked with the airline.
He added: "The company has ceased being a viable entity... and cannot continue to operate."
Cyrprus Airways was founded in 1947. Last year, the airline halved its London Heathrow to Larnaca operation (see news, March 2014).