"The people of Falluja have suspended negotiations, despite the fact they had made progress, because of arrests like mine and American policies," said Khalid Hamud al-Jumaili, who was released from US custody at 2am (2300 GMT) on Monday after his arrest three days ago.
US marines detained him along with Falluja's police chief Sabir al-Janabi and two other police officers while they were taking their families out of the city for safety, on Friday.
Other reports said the chief negotiator had been picked up after he left a mosque following Friday prayers in a village about 15km south of Falluja.
Al-Jumaili said the four men were taken to a marine base outside Falluja and then transported by helicopter to another location - "a very far place".
"Whenever we asked them for the reason for our arrests, they said they were just following orders," al-Jumaili told Aljazeera.
Talks between al-Jumaili and the interim government aimed at securing a truce, and the return of Iraqi security forces to Falluja collapsed last week after interim Prime Minister Iyad Allawi threatened to attack the city unless it handed over al-Qaida-linked Abu Musab al-Zarqawi and his followers.
Scores have been killed in Falluja
and hundreds of homes destroyed
Scores of people have been killed and hundreds of homes damaged in the continuing US onslaught on Falluja under the pretext of weeding out Abu Musab al-Zarqawi.
Battles between US forces and insurgents in Falluja lasted for nine hours on Sunday and were punctuated by air strikes.
"I think the residents of Falluja don't want this sort of peace. They want real peace, not a peace that stabs in the back and strikes and destroys homes and kills women," Jumaili said.
"Who asks for peace while bombs strike? Who agrees to peace when women are being killed?"
Al-Jumaili is a member of the Mujahidiin Shura (council) of tribal notables and insurgent leaders in Falluja, which has been in the hands of fighters since a US offensive in April failed to dislodge them. Police there do not answer to Baghdad.
The negotiator said he had met US civilian and political representatives, not Iraqi police or the US-established Iraqi national guard.
"The US representatives said Falluja will receive their rightful reconstruction aid and compensation soon, but they need time," said al-Jumaili.
"We told them that they had enough time and it was time for them to hold talks and achieve peace."