Tsvangirai, the leader of the Movement for Democratic Change (MDC), led Mugabe in first-round presidential election held on March 29. But he did not enough votes to secure an outright victory, necessitating the run-off vote.
Advocating a transitional phase for division-ridden Zimbabwe, Tsvangirai told Al Jazeera: "We are making this proposal which Mugabe has the choice to accept or not, and I am sure that Zimbabweans want a negotiated way out of the crisis.
"You cannot have an election when negotiations are taking place," he said.
Tsvangirai said key issues needed to be dealt with before Zimbabwe could return to normalcy.
They included an end to violence, the safe passage of humanitarian assistance, and the release of political prisoners.
When asked about the fact that some of his supporters felt let down by his pulling out of the presidential run-off, Tsvangirai said: "I cannot move around the country. Everything is being placed in my way when I try to campaign.
"We are not afraid of going into an election ... [but] this is not an election, this is war."
Haru Matasa, Al Jazeera's correspondent in Harare, said that Tsvangirai's proposal seemed to leave everything to the outside world, whereas Mugabe said this was a Zimbabwean problem that needed a Zimbabwean solution.
Meanwhile, the UK said it was preparing tougher sanctions against specific members of the Zimbabwean government and urged world leaders to work together to remove Mugabe from power.
Gordon Brown, the UK prime minister, said: "We are preparing intensified sanctions, financial and travel sanctions, against named members of the Mugabe regime."
He said the way forward for the country was by the UN and the African Union "working together for a change of regime."
The England and Wales Cricket Board (ECB) has suspended Zimababwe's tour of England in May next year after discussions with Cricket Zimbabwe on Wednesday.
In a statement the ECB said the UK government had given it "a clear instruction that Zimbabwe's bilateral tour scheduled under the ICC Future Tours Programme for 2009 should be cancelled".
The ECB said it shared the Government's concerns "about the deteriorating situation and lack of human rights in Zimbabwe" and were now in "detailed discussions to identify a replacement country to tour in the early part of the summer of 2009," an ECB statement said.
Brown supported ECB's decision and called for other countries to ban Zimbabwe from the Twenty20 international tournament, due to be held in June 2009.
The MDC says that at least 80 of its supporters have been killed by Zanu-PF loyalists and another 200,000 people have been displaced in what it calls Mugabe's "campaign of intimidation" to deter people from voting.
Mugabe supporters have denied the allegations.
But regional criticism of Mugabe's government has grown, with the ruling party in neighbouring South Africa issuing its harshest criticism to date.
The African National Congress said it was "deeply dismayed by the actions of the government of Zimbabwe which is riding roughshod over the hard-won democratic rights of the people of that country".
Southern African leaders of the SADC are holding an emergency meeting in Swaziland on the situation.