The decision comes two days after the US Treasury announced additional action to curb inversions, and address earnings stripping.
The US Department of the Treasury and the Internal Revenue Service (IRS) issued temporary and proposed regulations to further reduce the benefits of and limit the number of corporate tax inversions.
The treasury said after an inversion, several companies continue to take advantage of the benefits of being based in the US, forcing a greater tax burden to other businesses and American families.
Treasury Secretary Jacob Lew said: "Treasury has taken action twice to make it harder for companies to invert.
"These actions took away some of the economic benefits of inverting and helped slow the pace of these transactions, but we know companies will continue to seek new and creative ways to relocate their tax residence to avoid paying taxes here at home."
Under the terms of the deal announced in November 2015, Pfizer and Allergan proposed to come together to create the world’s largest pharmaceutical company.
In an inversion, a US firm shifts its tax address overseas, generally via a merger.
With respect Pfizer and Allergan deal, the new company would have been located in Ireland, when compared to the US.
In relation with the termination of the merger deal, Pfizer agreed to pay Allergan $150m for reimbursement of expenses associated with the transaction.
Pfizer chairman and CEO Ian Read said: "We plan to make a decision about whether to pursue a potential separation of our innovative and established businesses by no later than the end of 2016, consistent with our original timeframe for the decision prior to the announcement of the potential Allergan transaction."