In 2011, the South Africa Reserve Bank had chosen the Crane & Co paper factory in Tumba near Stockholm to print 8 billion South African rand ($1.25 billion) in 100-rand bills after a previous error at a South African printer had left bills without a key security feature.
But the new batch of Sweden-produced rand notes was also plagued with a series of problems, including faulty serial numbers as well as having been printed in the wrong colour and the wrong size, the Sunday Times newspaper of South Africa reported.
Some of the bills were up to a millimetre too short, something that could have caused problems in the country's cash machines.
According to the newspaper, the central bank will now have to destroy 3.6 million defective 100 rand notes worth a total of nearly $43 million.
A spokesperson for the Swedish paper factory refused to comment on the incident.
"We never confirm nor deny things about our customers. We direct all inquiries to the clients if they want to express themselves in any way," Thorbjörn Gustafsson, head of marketing for Crane in Sweden, told the TT news agency.
South Africa is redesigning its banknotes this year to include a portrait of the country's first post-apartheid president Nelson Mandela.
The bills also feature images of South Africa's big game animals, with a buffalo showing on the back of the 100-rand note.