"I have never felt more insulted as a writer in my life," the 86-year-old Magsaysay award winner told PTI, adding the decision was 'unjustified'.
Mahasweta, who had actively campaigned for Trinamool Congress in the last assembly elections, said she faxed her resignation to Chief Minister Mamata Banerjee.
At a recent meeting of the academy she had recommended the name of two authors for the Vidyasagar awards, but one of them was later rejected by the state government, she said.
"It was a unanimous decision at the meeting. Everyone had agreed upon the names. But I don't know why one of the names got excluded from the final list later without my knowledge," she said.
Mahasweta, however, refused to name the author she had recommended.
The Sahitya Akademi Award writer had on an earlier occasion described the state government as 'fascist' and alleged it was trying to throttle the people's voice.