Writing in a statement sent to PSU, the company stated: "With Dead Island 2, Deep Silver has always been dedicated to delivering the sequel that Dead Island fans deserve.
"After careful consideration, today we announce the decision to part ways with development partner YAGER.
"We will continue working towards bringing our vision of Dead Island 2 to life, and we will share further information at a later stage."
Dead Island 2 was originally planned for release in spring 2015, but was delayed to 2016 earlier this year. The game is in development for PlayStation 4, PC and Xbox One. At the time of writing, a replacement developer has yet to be announced.
Read our hands-on impressions of Dead Island 2 here.