With revenue remaining at £3.2 billion, the major loss is due to the company making a £160m provision as its exits the energy from waste sector.
Last year, Interserve was removed from the Glasgow Recycling and Renewable Energy project due to project delays.
The Board announced an exceptional provision of £70m in May the same year to cover exit costs. However, costs associated by exiting the project have proved far worse than expected.
In addition, the company's UK construction division suffered a £3m operating loss due to "challenging market conditions, coupled with pockets of underperformance in operational delivery in a number of contracts".
However, with a future workload of £7.6bn, and particularly strong growth in international construction, Chief Executive Adrian Ringrose said 2016 was a "mixed year" for the Group.
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"We delivered a strong cash performance and the majority of our businesses performed well despite political and economic uncertainties, together with the impact of the National Living Wage in the UK. However, the performance of our UK Construction business was disappointing, and we are focussing our efforts on improving and re-shaping this business.
"Managing the challenges of exiting from the Energy from Waste sector remains a significant priority. As previously announced, we have increased the exceptional provision for exiting this market and the associated contracts to £160 million. We expect to complete substantially all of the construction and commissioning of the projects during 2017, although our contractual obligations in respect of warranties, and the resolution of claims will continue for a period thereafter.
"While liquidity available to the group is adequate, having put in place new banking facilities that expand and extend our debt capacity, the Board has a medium term objective to reduce our overall indebtedness and enhance liquidity levels further whilst continuing to invest in our core businesses. We have therefore taken the difficult decision to suspend the dividend temporarily.
"Despite the increased uncertainty following the UK's EU referendum, our outlook for the current year remains positive. This, together with our strong market positions and healthy future workload, underpins the Board's confidence in our medium term prospects."
(LM/MH)
