However, Nokia will produce mobile devices for Microsoft from the plant as part of a service agreement between the companies.
To counter uncertainty for its employees in Chennai, Nokia plans to offer a programme of support, including help for them to explore for opportunities elsewhere.
"In India, our manufacturing facility is subject to an asset freeze by the Indian tax authorities as a result of ongoing tax proceedings. Consequently, the facility remains part of Nokia following the closing of the transaction," the Finnish firm said in a statement.
"Nokia and Microsoft have entered into a service agreement whereby Nokia would produce mobile devices for Microsoft," it said.
Microsoft said in a separate statement that the factory in Chennai will stay with Nokia due to the tax liens on Nokia's assets in India that prevent transfer.
In March, the Tamil Nadu government served a Rs 2,400 crore notice on Nokia, saying the firm sold products from the Chennai plant in the domestic market instead of shipping them overseas.
In a separate tax case, the Supreme Court ordered Nokia India on March 14 to give a Rs 3,500 crore guarantee before it transfers the plant to Microsoft.
Nokia had often indicated that the transfer of the plant could be adversely impacted if the dispute remains unresolved.
Recently, the company offered a voluntary retirement scheme to its employees in Chennai.
Nokia said it plans to bring to Chennai elements of its Bridge programme, which was made available for employees affected by company changes in other sites.
Under the programme, it plans to offer a programme of support, including financial assistance, which would give employees the chance to explore opportunities outside Nokia.
The plant at Sriperumbudur near Chennai is one of Nokia's biggest facilities globally, employing about 8,000 persons directly and about 12,000 indirectly. Nokia had invested about USD 500 million in the factory.
Nokia started manufacturing in Chennai in January 2006 and exports to markets including the Middle East and Africa, Asia, Australia and New Zealand.