The contract covers the Marmite, Pot Noodle, Slim-Fast, Bertolli, Peperami, Beef Tonight, Hellmann's and Carb Options brands.
Unilever UK Foods had forecast PR fees on the account would continue to hover around £1m for 2005 - as it had been during Freuds' tenure - but is understood to have cut spend to around £200,000.
Freuds vice-chairman Kris Thykier said: 'As a result of increasing budget restraints across the range of Unilever food accounts, it is no longer feasible to maintain an exclusive relationship.'
Freuds is understood to have been approached by Unilever rivals.
The final straw appears to have been Unilever cutting Marmite's PR spend. The company is prioritising advertising activity to promote its famous yeast extract brand, but has held talks with other PR agencies.
Freuds will continue to handle Unilever's Lynx account, which is not affected by the move.
Unilever UK Foods head of communications Duncan Bogie refused to comment.
Freuds also handles Gillette's Braun and Oral B products, owned by Unilever rival Procter & Gamble, which bought the company in January. However, the Freuds resignation of the Unilever account is not due to conflict of interest here.
Unilever bought Bestfood in 1995, but sales of some brands, such as Slim-Fast, have fallen.