In a letter to the community, the chamber said it had "made the decision to return the monetary sponsorship donation made to us by BP Refinery."
Pierogi Fest is scheduled for July 24-26 in Whiting.
The chamber also said it will place donation boxes throughout the festival to support more than 800 BP workers who have been without pay since being locked out of BP's Whiting refinery in mid-March amid a contract dispute.
"It's really uplifting to see the community support that we've been receiving. We didn't pressure the chamber into making this decision. It seems like it was just something that organically the chamber felt like it was the right thing to do," said Eric Schultz, president of United Steelworkers Local 7-1.
The Pierogi Fest decision comes just days after the city of Hammond dropped BP as a sponsor of next week's Festival of the Lakes.
Speaking on his "Left of Center" podcast, Hammond Mayor Thomas McDermott discussed that decision.
"Personally, I didn't realize we took the money, but we did apparently, and I was like, Scott, when I hear about it on Sunday, I'm like dude, you gotta refund that immediately," McDermott said.
The union said it has been weeks since the two sides last met at the bargaining table. Union officials say the four-month lockout has placed increasing strain on workers and their families.
"Obviously the financial burden, people trying to find a couple of jobs to make ends meet or people moving out of state to find another job that's comparable," Schultz said.
Messages left by ABC7 for BP requesting comment were not returned Friday.