Republican House Speaker John Boehner has walked away from crunch debt ceiling talks at the White House with US President Barack Obama.
Mr Obama said Mr Boehner had rejected an "extraordinarily fair deal" that would have included $650bn (£400bn) of cuts to entitlement programmes.
Mr Obama said he had been willing to take "a lot of heat" from his party.
Explaining the walkout, Mr Boehner told his Republican colleagues: "In the end, we couldn't connect."
"I have decided to end discussions with the White House and begin conversations with the leaders of the Senate in an effort to find a path forward," Mr Boehner said in a letter to the Republican rank and file.
The president called for new talks with congressional leaders on Saturday at 1100 (1500 GMT).
'Call not returned'
The talks were aimed at avoiding what analysts say would be a financially catastrophic US debt default on 2 August.
"It is hard to understand why Speaker Boehner would walk away from this kind of deal," President Obama said at a news conference on Friday evening.
"There are a lot of Republicans who are puzzled as to why it couldn't get done," he added.
Senior Republican aides said President Obama and congressional Republicans had been close to reaching a deal last week, but that the White House had changed its demand to call for higher taxes.
White House correspondents said Mr Obama looked visibly angry as he told reporters that until "sometime early today when I couldn't get a phone call returned, my expectation was that Boehner was going to go to his caucus" to help finalise a deal.
Despite the breakdown in talks, Mr Obama said on Friday he was confident the $14.3tn (£8.7tn) limit on US borrowing would be raised by the approaching deadline.
But the president also countenanced for the first time the possibility of the US not meeting its financial obligations.
"If we default, then we're going to have to make adjustments," he said.
Mr Obama said he was "fed up" with political posturing and was willing to "sign an extension of the debt ceiling which takes us through 2013".
'Taxes destroy jobs'
In his letter to congressional colleagues, Mr Boehner said the president was "emphatic that taxes have to be raised".
"As a former small businessman, I know tax increases destroy jobs," he added.
Republicans have been unwilling to consider raising new tax revenues to counter the growing budget deficits.
The Democrats have been opposed to cutting popular healthcare and welfare programmes for pensioners and the poor.
Earlier on Friday, the Democratic-led US Senate rejected a "cut, cap and balance" bill passed by the Republican-led House, which would have severely cut public spending and forced the government to balance its budget.