The South African government said it was "extremely concerned" about Zimbabwe’s political impasse, which has deepened a humanitarian crisis.
Mugabe is trying to push through a constitutional amendment allowing him to name a cabinet, which could lead to the unravelling of a deadlocked September 15 power-sharing agreement with the opposition.
The MDC has refused to enter the government, accusing Mugabe of trying to control most of the powerful ministries. The main obstacle in the talks is the issue of who runs the home affairs ministry, which oversees the police.
The September deal had raised hopes that a new leadership would get on with the task of rescuing the ruined economy.
But the power struggle between Mugabe and MDC leader Morgan Tsvangirai, his old foe, has overshadowed daily hardships including food and fuel shortages that have driven millions of Zimbabweans out of the country and strained regional economies.
Zimbabwe’s rival parties will meet with former South African President Thabo Mbeki, who is mediating, next week in South Africa to discuss the deadlock, the South African foreign ministry said.
The Southern African Development Community (SADC) group of nations has failed to push Zimbabwe’s parties to settle their differences and get on with the task of rescuing the economy.
Regional power South Africa said it was disappointed to note that "political interests have taken priority at the expense of the lives of ordinary Zimbabweans".
"Cabinet decided that the approved R300 will be retained for agricultural assistance to Zimbabwe," said a cabinet statement.
"However, this money will be only disbursed once a representative government was in place and in time for the next planting season in April 2009."
The world’s highest inflation rate — above 231 million percent — has made life unbearable for Zimbabweans. And there are new signs of economic deterioration in what used to be one of Africa’s most promising countries.
Zimbabwe’s gold output, which accounts for a third of its export earnings, hit an all-time monthly low of 125 kg in October as economic woes forced more mine closures, a mining official said on Thursday.
The sector has virtually shut down as miners cannot fund operations, senior Zimbabwe chamber of mines official Douglas Verden told Reuters.
Critics accuse Mugabe of ruining the country, but the 84-year-old leader, in power since independence from Britain in 1980, says the economy has been sabotaged by forces opposed to his nationalist stance.
The MDC has said it plans to offer its own amendment to Mugabe’s draft bill at the meeting in South Africa, while insisting that the talks focus on breaking the impasse on the cabinet rather than the proposed amendment.
"It is quite disturbing that people are trying to stampede us into a political settlement," said Nelson Chamisa, spokesman for the larger of the two MDC factions.