On Sunday Zimbabwean police crushed an opposition rally in Harare and arrested the leader of the Movement for Democratic Change (MDC), Morgan Tsvangirai, and other activists for defying a police ban.
Tsvangirai and several of his supporters were beaten up while in police custody.
John Kufuor, the AU chairman said on Wednesday the situation in Zimbabwe was "embarrassing", but defended the body's response to the crisis.
Demonstrators in London, where he was speaking, denounced the African body's failure to condemn Mugabe outright.
Mugabe has brushed aside international condemnation sparked by images of a badly-beaten Tsvangirai, saying Western governments could "go hang", and accused the opposition of waging a violent campaign against him.
African leaders have acknowledged the dangers they face from the economic meltdown in Zimbabwe, where inflation stands at 1,730 per cent and unemployment at 80 per cent.
But they have been reluctant to speak out, despite pressure from the West.
Desmond Tutu, the South African Nobel laureate, said on Friday that African leaders should be ashamed over the crisis in Zimbabwe.