By Matt Grossman and Esther Fung

Simon Property Group Inc. is terminating its $3.6 billion deal to acquire Taubman Centers Inc., the latest sign of the severe pressure the retail sector and mall industry are contending with during the coronavirus pandemic.

The deal, announced in February, would have combined two landlords as the industry struggles with an oversupply of malls and the decline of traditional retail stores against the rising tide of e-commerce.

Taubman described Simon's attempt to terminate the deal as "without merit" in a statement Wednesday afternoon, adding that it still considers Simon to be bound by the agreement.

"Taubman intends to hold Simon to its obligations under the merger agreement and the agreed transaction, and to vigorously contest Simon's purported termination," Taubman said.

Nearly two decades after Simon's first attempt to acquire Taubman through a hostile takeover, circumstances have changed dramatically. The Indianapolis-based Simon, which asked a Michigan court for a declaration that Simon had validly terminated the deal, could also be using the lawsuit to renegotiate a lower price, said BTIG analyst Jim Sullivan.

Simon declined to comment on that assertion.

The pandemic has resulted in an explosion of requests for rent relief, retailer bankruptcies and store closures, putting pressure on all landlords including Simon, to conserve cash. Earlier this month, CBL & Associates Properties Inc. skipped an interest payment to bondholders, becoming the first major retail landlord during the pandemic to take this step toward a bond default.

Taubman shares declined fell 20% to $37.17 Wednesday. Shares of Simon declined 4% to $81.70.

The deal gave Simon the right to end the agreement if Taubman was disproportionately affected by a pandemic, Simon said in a statement Wednesday. The pandemic's impact on Taubman was amplified because much of its portfolio of malls is in dense metropolitan areas, and its tenants rely on high-end shoppers and tourists, Simon added.

The complaint filed in Michigan court also said that Taubman failed to take timely action to lay off staff or cut executive compensation to reduce expenses.

Taubman's portfolio includes 26 shopping centers in the U.S. and Asia. Its properties include Los Angeles' Beverly Center, The Mall at Short Hills in Short Hills, N.J., and International Place Market near Honolulu's tourist center.

Simon owned a stake in more than 200 U.S. properties as of the end of last year, the company said in its annual report. Its plan to buy Taubman followed an unsuccessful pursuit of rival Macerich Co. in 2015 and a February deal to acquire Forever 21, along with two partners.

The coronavirus pandemic dealt a blow to retail tenants and landlords already struggling with declining income as consumers shifted more spending online. The public-health crisis temporarily closed malls nationwide beginning in March. In April, UBS estimated that 100,000 stores could close in the U.S. over the next five years.

Sales at prominent mall tenants have fallen substantially over the past several months. Macy's Inc. saw sales decline by as much as 45% in the first quarter. Sales for L Brands Inc., the parent company of Victoria's Secret, fell by 37% in the quarter.

Simon said it filed an action Wednesday in a Michigan court requesting a declaration that Taubman breached the deal's covenants.

Write to Matt Grossman at matt.grossman@wsj.com and Esther Fung at esther.fung@wsj.com