The opposition bucked intense pressure to accept the power-sharing proposal because the plan does not include the automatic removal of embattled President Jean-Betrand Aristide.
The president had earlier refused to step down and predicted brutal killing sprees if his political foes did not relent.
The rejection is to be announced on Wednesday and is expected to be roundly condemned, particularly by the United States which had leaned heavily on the opposition to accept the proposal.
Evans Paul, a senior member of the Democratic Platform coalition, said the rejection letter had been handed to David Lee, the head of a special Organisation of American States (OAS) mission in Haiti.
Under the plan, Aristide would have ceded significant powers to a new prime minister and cabinet, but would serve out his term.
And foreign governments would have helped face down the spreading insurgency with the dispatch of an "international security presence".
"We are still talking and working with the parties in Haiti to gain acceptance of the (peace) plan"
US State Department official
But Secretary of State Colin Powell has not given up on the plan.
"We are still talking and working with the parties in Haiti to gain acceptance of the plan," a State Department official said on condition of anonymity.
Powell "supported the French offer to organise a meeting in Paris and hopes the parties will take advantage of the opportunity", the official said.
The opposition's final rejection of the proposal is almost certain to cause further deterioration in Haiti's already volatile countryside as well as the capital, which the rebels have vowed to take if Aristide remains in office.
With their seizure of north-western Port-de-Paix overnight, the rebels now control at least half of the country.
Chaos and looting
They hold nearly all of northern Haiti, including the second-largest city of Cap Haitien, which they took on Sunday, sparking chaos and widespread looting.
Rebel leader Guy Philippe reaffirmed on Tuesday he aims to "liberate Port-au-Prince", and said the rebel advance had so far been "too easy".
Police and armed pro-Aristide gangs have built barricades on roads outside Port-au-Prince in response to the threats and sporadic attacks on the capital's outskirts.
Some 50 US marines, dispatched on Monday, patrolled the US embassy compound.
Jean-Bertrand Aristide has been
accused of stifling democracy
Britain on Tuesday joined France, the US, Mexico and Canada in urging its nationals to leave the country. Foreigners hoping to catch flights out made long lines at the Port-au-Prince airport.
In Port-de-Paix looting erupted when rebels moved in and police fled, according to local radio reports. Several buildings were set ablaze in the city, which has a population of about 120,000.
'Terrorists and killers'
No casualty figures were available, but Aristide, without mentioning the name of the fallen city, indicated numerous people had died.
"Last night the terrorists and killers went to the north-west of the country ... killing innocent people," he said.
Port-de-Paix is the nearest port to the US coast. Aristide said its collapse could unleash a wave of boat people, many of whom would likely die attempting to reach Florida in flimsy vessels.
Dozens of refugees have already arrived in Jamaica, but Aristide urged Haitians not to leave, holding out a promise of legislative elections by November if the political opposition agreed to the power-sharing deal.
At least 70 people have been killed in the three-week-old insurrection.
Aristide noted some rebels had led death squads during the dictatorship that toppled him in 1991. "Now, they are back to kill again," he told reporters at the National Palace.
"Last night the terrorists and killers went to the north-west of the country ... killing innocent people"
He brandished photographs of corpses of some of the thousands slain during the military rule.
The United States invaded and returned the former Roman Catholic priest to power in 1994.
In New York, Human Rights Watch said the insurgents were on a collision course with pro-government gangs, which could trigger violent reprisals.
It called for the international community to send troops and police quickly to prevent a bloodbath.
Aristide did not directly call for international intervention but said Haiti needed the police and police trainers the peace plan called on foreign governments to supply.
He said the political opposition was in league with the rebels and would bear the blame if the country descended into chaos.
The opposition adamently denied links with the insurgents. However, it insisted it would not accept the power-sharing plan unless Aristide departs.