With no more talks scheduled, the country is set to enter the new year with the prospect of a snap poll, political sources said on Sunday.
Several new proposals to break the stalemate were discussed by officials last week, but they were rejected by both President Chandrika Kumaratunga and Prime Minister Ranil Wickremesinghe, the sources said.
"The officials' committee ended their meeting last week without agreement on another round of talks," a source close to both sides said.
"They have not made any headway on the crucial issue of defence."
Officials who took part in the negotiations said Wickremesinghe wanted total control over the armed forces to ensure implementation of the Oslo-brokered truce with the rebels.
Kumaratunga and Wickremesinghe, who are from rival parties, have held four rounds of unsuccessful talks.
Their aides have held many more meetings.
The crisis began after Kumaratunga sacked three ministers on 4 November and took charge of the portfolios of defence, interior and information.
Political observers believe the president may try to end the deadlock by calling parliamentary polls four years ahead of schedule.
Sri Lanka is scheduled to hold local council polls starting in March, letting both sides test their electoral strength.
Rebels committed to talks
The Tamil Tigers would be willing to continue negotiations even if a political feud forced Wickremesinghe from power, pro-rebel media reported on Saturday.
"We are ready to negotiate with anyone who comes to power at a general election in Sri Lanka as long as he or she is a person ready to work towards an agreement... with commitment and sincerity," the Tamilnet website quoted rebel political wing leader SP Thamilselvan as saying.