The perceptual salience and visibility of image elements is influenced by other elements in their vicinity. The perceptual effect of image elements on an adjacent target element depends on their relative orientation. Collinear flanking elements usually improve sensitivity for the target element, whereas orthogonal elements have a weaker effect. It is believed that the collinear flankers exert these effects through lateral interactions between neurons in the primary visual cortex (area V1), but the precise mechanisms underlying these contextual interactions remain unknown. Here, we directly examined this question by recording the effects of flankers on the responses of V1 neurons at parafoveal representations while monkeys performed a fixation task or a contrast detection task. We found, unexpectedly, that collinear flankers reduce the monkeys' perceptual sensitivity for a central target element. This behavioral effect was explained by a flanker-induced increase in the activity of V1 neurons in the absence of the central target stimulus, which reduced the amplitude of the target response. Our results indicate that the dominant effect of collinear flankers in parafoveal vision is suppression and suggest that these suppressive effects are caused by a decrease in the dynamic range of neurons coding the central target. Copyright © 2010 the authors.