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Saudi Arabia has ordered Lebanon's ambassador to leave within 48 hours over "insulting" comments by a Lebanese minister.
The kingdom has also imposed a blanket ban on all imports from Lebanon.
The move comes days after remarks by Lebanon's information minister about the Saudi-led military campaign in Yemen sparked outrage in the kingdom.
Lebanon's prime minister said he regretted the Saudis' decision and hoped they would reconsider.
Saudi Arabia said it was also recalling its envoy in Beirut for "consultations".
In an interview aired earlier this week but recorded in August, Lebanon's Information Minister George Kordahi appeared to call Saudi Arabia and the United Arab Emirates (UAE) aggressors in the war in Yemen.
For seven years, a Saudi-led military coalition has been fighting Houthi rebels in Yemen.
Mr Kordahi, who was speaking before he became a minister, called the conflict "futile" and said the Houthis were acting in "self-defence".
Both Saudi Arabia and the rebels have faced international criticism over alleged atrocities in Yemen.
But the Lebanese government said Mr Kordahi's remarks did not reflect its position.
Relations between Lebanon and Saudi Arabia have worsened in recent years. The Iran-backed militant group Hezbollah, which also backs the Houthi rebels in Yemen, has grown in strength in Lebanon.
Mr Kordahi is a member of a political bloc allied to Hezbollah.
Within hours of the Saudi announcement, nearby Bahrain also expelled its Lebanese ambassador.
Lebanon is grappling with a deepening economic crisis and political infighting.
Prime Minister Najib Mikati said he was "deeply sorry" about the Saudi decision and would work to repair relations.
"We will continue to work to solve what needs to be solved," he said.
Row becomes full-blown crisis
This is a punishing rebuke by Saudi Arabia. It turns a smouldering row into a full-blown crisis.
The latest trigger was the emergence of old comments by Lebanon's information minister appearing to label Saudi Arabia as aggressors in the war in Yemen.
But the bigger source of Saudi anger is the growing dominance in Lebanon of Hezbollah, the heavily armed Shia movement backed by Iran. Riyadh has always wanted the group's grip diminished.
Pulling out ambassadors puts even more pressure on Lebanon.
Currently in the midst of such an economic and political crisis, many are wondering how many more blows it can take before a complete collapse.