"Our doubts (about the talks) were confirmed when the French foreign ministry tried to wriggle out of the agreement" reached between the two sides on 11 September, the head of the Libyan delegation, Salah Abd al-Salam, said.
"As a result, we will not continue these negotiations. The talks have been suspended," he said on Tuesday.
The secretive negotiations in Paris between a Libyan delegation and the victims' families opened earlier on Tuesday after the two sides missed a Saturday deadline for a settlement set under the September agreement.
A spokesman for the families, Guillaume Denoix de Saint-Marc, said that the Libyan negotiators "are still in Paris, there is a possibility that the negotiations could resume tomorrow (Wednesday)."
The interim deal had paved the way for France to drop a veto threat against a UN Security Council resolution lifting a decade-old sanctions against Libya imposed over both the French UTA bombing over Niger which killed 170 people and that of a Pan Am airliner over Lockerbie, Scotland the previous year.
But despite the Libyans' contacting the families shortly before the deadline to request fresh talks, the two sides swiftly fell out over what had already been agreed.
"The current proposals do not meet the wishes of most of the families of the victims"
President, SOS Attentats
"The current proposals do not meet the wishes of most of the families of the victims," said Francoise Rudetzki, president of SOS Attentats which is helping the victims' relatives.
However, Denoix de Saint-Marc was more optimistic, saying: "the advances are slow but significant."
There was no immediate reaction from Paris to the Libyan announcement but the head of the Libyan delegation was adamant he did not expect the negotiations to resume.
Although Libya is under less pressure to reach a deal with the UTA families now that UN sanctions have been lifted, its leader Muammar Qadhafi is understood to be keen to reach an agreement in order to have a 1999 French conviction in absentia against six Libyans - including his brother-in-law - quashed.