"Regrettably, after four days of intense negotiations, we have failed to agree on the… key issue, which is the equitable allocation of ministerial posts and the composition of cabinet," he told reporters after more than eight hours of talks Friday.
"Therefore a deadlock has been declared," he said, calling on the African Union and the regional bloc, the Southern African Development Community, to intervene.
"We believe that for an inclusive government to work, the principles of equitable sharing of power… should be embraced. It appears we are far apart on this principle," Tsvangirai said.
The opposition leader said on he had failed to agree on a cabinet with Robert Mugabe after four days of talks and called for African intervention to end the deadlock.
"We have failed to agree on the allocation of ministerial positions," he told journalists.
Tsvangirai says SADC to meet Monday on Zimbabwe.
Arthur Mutambara, head of the smaller MDC faction, said "I have no option but to follow these two men who have failed to agree. I saw partisanship and bankrupt ambition disrupting the discourse," he told reporters after four days of talks.
On his way from the talks venue Robert Mugabe said four days of talks on forming a cabinet with the opposition which ended in the wrong direction.
"It went very well in the wrong direction," Mugabe told reporters, adding that former South African president Thabo Mbeki, who has been mediating in the negotiations, will make a statement on Saturday on the way forward.
The day began with accusations and counter accusations with the opposition MDC saying the United Nations and African Union should step in to mediate between the country’s rivals if talks aimed at rescuing a power-sharing deal remain deadlocked over cabinet posts.
"They (the U.N. and AU) are the guarantors of the (power-sharing) agreement. If ZANU-PF continues to be intransigent, then those institutions should step in," MDC spokesman Nelson Chamisa said.
President Robert Mugabe, MDC leader Morgan Tsvangirai and Arthur Mutambara of a splinter MDC faction have failed to agree on forming a cabinet in three days of talks. Another round of negotiations started on Friday.
Supporters of Mugabe earlier accused the Movement for Democratic Change (MDC) of "bad faith" and of stalling to try to bring about U.N. mediation, while the MDC blamed the delay on ZANU-PF’s "inflexibility".
The power-sharing deal, brokered by former South African President Thabo Mbeki a month ago, is seen as Zimbabwe’s best hope for rescuing an economy where fuel and food are scarce, and inflation stands at 231 million percent, the world’s highest.
Mugabe, in power since independence from Britain in 1980, seemed relaxed as he arrived at the talks venue to negotiate.
When asked whether Friday would be deal day, he said: "D Day?", and then joked in the local Shona language.
"It’s not D-Day but a day for striking deals," he said, in street lingo describing how people survive by cutting deals.
Tsvangirai threatened to pull out on Sunday after Mugabe allocated powerful ministries such as defence, finance and home affairs — which controls the police — to his ZANU-PF party.
Chamisa said by telephone that the MDC was ready to compromise, but "not to the point of betrayal", and would not settle for being the junior partner in a Mugabe-led government.
Asked when he arrived for talks if he was expecting a breakthrough on Friday, Tsvangirai told reporters: "We all have to have hope, don’t we?"
The trading of accusations has not relented as optimism mixes with pessimism before and after each round of talks.
The official Herald newspaper quoted ZANU-PF sources on Friday as saying Tsvangirai’s Movement for Democratic Change (MDC) — which it calls MDC-T — had a hidden agenda.
"Insiders privy to the discussions told the Herald it appeared as if the MDC-T was negotiating in bad faith and angling for a deadlock in the hope that the mediation would be taken out of the hands of comrade Mbeki and assumed by the African Union and the United Nations," it said.
The paper’s sources said Tsvangirai was acting under pressure from the United States and Britain, Mugabe’s favourite allegation against his long-time foe.
The MDC has accused Mbeki in the past of favouring Mugabe. It has toned down its criticism since Mbeki brokered the power-sharing deal. Although Mbeki’s effectiveness was thrown into doubt after South Africa’s ruling party ousted him.