Sveriges Radio has reported that Petrobras is being probed on suspicion of shelling out millions in bribes to secure lucrative contracts for refineries and pipelines that Skanska has been building.
A total of 20 senior managers with construction companies in Brazil have been arrested in connection with the major corruption scandal.
It has emerged that two representatives of Skanska's partners in Brazil have confessed that they paid bribes to Petrobras to secure contracts. No Skanska manager has been arrested as part of the probe.
Following the wake of revelations the Swedish engineering firm has now decided to abandon the emerging South American market.
"The environment in South America has a lot of corruption so of course it is very difficult to work in," said Johan Henriksson, president of Skanska Latin America, to Sveriges Radio.
He said the company is now conducting its own investigation to see whether any bribes were paid on behalf of Skanska.
One of Skanska's partners in the region, Brazilan construction outfit Camargo Corrêa, have featured prominently in the investigation. A representative of the company said he paid millions in bribes in order to secure the gas pipeline contract.
When questioned if Skanska had paid any bribes to land any of its contracts in Brazil in recent years Henriksson replied.
"I don't know. We are following this up internally."
In 2013, Skanska increased its workforce slightly to 55,600 people and announced improved profits after a strong performance in the North American market.