The move is expected to have minimal impact on the Saudi effort because the US was only providing refueling for some 20% of Saudi aircraft.
The Saudi-led coalition fighting the Houthis in Yemen issued a statement on Friday confirming the decision, saying the cessation of aerial refueling was made at the request of the coalition due to improvements in their own refueling capabilities.
"Recently the Kingdom (of Saudi Arabia) and the Coalition has increased its capability to independently conduct inflight refueling in Yemen. As a result, in consultation with the United States, the Coalition has requested cessation of inflight refueling support for its operations in Yemen," the statement said.
The Pentagon and the State Department would not confirm the move.
"We have ongoing discussions with our partners, but have nothing to announce at this time," Pentagon spokesman Col. Rob Manning said in a statement.
Secretary of Defense James Mattis also confirmed the decision in a statement issued later on Friday.
"We support the decision by the Kingdom of Saudi Arabia, after consultations with the US Government, to use the Coalition's own military capabilities to conduct inflight refueling in support of its operations in Yemen," Mattis said.
He said that the US and the Saudis were "focused on supporting resolution of the conflict, led by UN Special Envoy, Martin Griffiths" and that "the US and the Coalition are planning to collaborate on building up legitimate Yemeni forces to defend the Yemeni people, secure their country's borders, and contribute to counter Al Qaeda and ISIS efforts in Yemen and the region."
While the refueling has not stopped yet, the Pentagon and Saudis are going to announce it together to head off pending legislation, a diplomatic source confirms to CNN.
The Trump administration has been criticized by humanitarian groups and some members of Congress for its support for the Saudi-led coalition fighting the Houthis in Yemen and for the administration's recent finding that the coalition was doing enough to avoid civilian casualties.
In addition to aerial refueling, the US military provides the Saudi coalition with training meant to help minimize civilian casualties as well as with intelligence to help guard against Houthi cross-border missile and drone attacks.
Mattis confirmed in his statement that those support activities would go on, saying the US will "continue working with the Coalition and Yemen to minimize civilian casualties and expand urgent humanitarian efforts throughout the country."
Mattis said last month that the goal of that training was "to achieve a level of capability by those forces fighting against the Houthis, that they are not killing innocent people."
But many Democrats in Congress are seeking to cut US support for the Saudi-led coalition and Democrats in the House have introduced a bill that would put a stop to that assistance.
A Democratic House aide told CNN that while they are optimistic the bill will be passed in the lame duck session, the fact that the Democrats took control of the House in the midterm elections has bolstered the chance of it passing soon.
The bill is co-sponsored by Democrats who are viewed as likely to be taking critical committee chairmanships in the next Congress, including Rep. Adam Smith from the House Armed Services Committee and Rep. Eliot Engel from the Foreign Relations Committee.
The bill would not affect US military activities aimed at countering the Yemen-based affiliates of ISIS and al Qaeda.
One of the sponsors of that bill signaled support for the decision to stop aerial refueling of Saudi warplanes, calling it a "major victory."
"Congress has won a major victory in convincing the administration to end US refueling in the Saudi-led war in Yemen," Democrat Rep. Ro Khanna of California told CNN in a statement.
Khanna, a member of the House Armed Services Committee, added that Congress needed "to memorialize and confirm the decision" by passing the bill "to ensure that all US involvement is shut off and reclaim congressional authority."
A US official told CNN Friday that the Trump administration was weighing designating the Iranian-backed Houthis as a Foreign Terrorist Organization, a label applied to groups like al Qaeda and Hezbollah.
The Democratic aide said that the Trump administration's public criticism of the Houthis and its consideration of foreign terrorist organization designation is likely part of an effort to bolster public support for US aid to the Saudi-led coalition.
But in his remarks last month, Mattis sought to distance the US backing of the Saudi-led coalition fighting in Yemen from the killing Khashoggi, an event that he once again condemned, saying the two issues are "separate."
News of the planned reduction in aid to Saudi Arabia comes the same day as their opponents in the Yemen Civil War, the Houthi Rebels, fired an anti-ship missile into the Red Sea, according to multiple defense officials, a move that comes the same day the Houthi leader rejected the Trump administration's proposal for a ceasefire aimed at ending the civil war.
The missile was fired from the city of Hodeidah, the last Houthi-controlled port, which is the site of fierce fighting between the Houthis and forces from the Saudi-led international coalition which is allied with Yemen's internationally recognized government. Another official said the missile came from a concealed position inside a vehicle, underscoring the difficulty in targeting.
The US believes the Houthis receive many of their missiles from their ally Iran, though the rebels have also captured stockpiles that once belonged to the government of Yemen.
A US defense official told CNN that the missile's target was not clear but that there was a Saudi-flagged oil tanker 50 miles off the coast of Hodeidah when it was fired, that vessel is not believed to have been struck. The Red Sea is home to a large amount of shipping, particularly of oil and gas.
The fighting in and around Hodeidah has sparked concerns that the flow of humanitarian aid to Houthi-controlled areas could be interrupted and the UN has warned that millions of Yemenis face the risk of starvation should that aid be cut off.
However, Houthi leader Mohammed Ali al-Houthi appeared to reject the terms of the US proposal on Friday, saying the recent US statements on a ceasefire were "trying to mislead the world."
He accused the US of "participating and sometimes leading the aggression in Yemen" and rejected the US terms for a ceasefire that would begin with the Houthis halting their missile attacks.
"We are ready to stop the missiles if the Saudi-led coalition stops its airstrikes," he wrote.
CNN's Elise Labott contributed to this report.