Obasanjo said another reason why he pulled the plug on the talks is because the rebel delegation had no decision-making power to proceed any further.
Fighting since late August between government troops and the CNDP has displaced more than 250,000 people in eastern Nord-Kivu province.
"At the moment [the rebel delegation is] a little bit unclear on their aims and their objectives," Obasanjo told reporters.
"We cannot continue to sit with a mediation that has taken sides"
Bertrand Bisimwa, rebel spokesman
"The power given to the [rebel] delegation by its leadership appeared to have severely limited its ability to make decisions... They have a mandate to be here, but they don't have the power to take decisions."
Raymond Tshibanda, DR Congo's co-operation minister, is leading the government delegation, while the five-member rebel team is headed by Serge Kambasu Ngeve, the deputy executive secretary of the National Congress for the Defence of the People (CNDP).
Obasanjo said he will next send his own delegation to Goma, the rebel-ringed main city in the east of Congo, to see Laurent Nkunda, the CNDP leader.
Al Jazeera's Yvonne Ndege, reporting from Nairobi, said Obasanjo blamed the failed talks on the ineptitude and incompetence of the rebel delegation members who were seen making constant calls to Nkunda to get directives for the most basic decisions.
Our correspondent says it is however unclear if Nkunda will agree to meet Obasanjo's team later this week.
The rebels accused the UN mediation efforts of siding with the Congolese government and angrily threatened to pull out of the talks.
"We cannot continue to sit with a mediation that has taken sides," Bertrand Bisimwa, a CNDP spokesman, told AFP news agency in Kinshasa by telephone.
"We prefer to withdraw to deal with the suffering of our people."
Earlier Jens Laerke, a UN spokesman, said there had been hope of reaching an agreement on a framework for substantive talks with a view to halting the conflict eastern Congo.
Paul Pumphrey, the founding member of Friends of the Congo, told Al Jazeera that the talks had not focused on "the root cause of the problem".
|Nkunda's forces have made territorial gains in recent fighting in eastern DR Congo [AFP]
"This problem ... is created around the industrialised world wanting to get their hands on the mineral resources of the Congo," he said.
"Outside forces want to rob the minerals out of the Congo and not pay a fair share for those minerals. And they've used this war as a means to push people off their land and not pay royalties and the government at all.
"Ninety per cent of [the Congo's] population do not make $100 a year. So where would they buy guns from? These guns coming into this war are coming in from other sources, not the local community.
"Industry works hand in hand with government ... Countries like the United States, like Great Britain, like France, like Japan, these are countries whose governments operate on the behest of their corporations.
"So I hold countries like the United States very much responsible for this war."
Also on Wednesday, a UN expert panel accused Rwanda and Congolese governments of backing rebels in eastern DR Congo.
The draft report says that Rwandan army elements and some government officials helped recruit fighters to help Nkunda.
It also alleges that the the Congolese army has supported Rwandan Hutu militias in eastern DR Congo, which include some Hutus accused of carrying out the Rwandan 1994 genocide.
The report was sent to members of a Security Council committee which is overseeing the implementation of a UN arms embargo and asset freeze against rebel groups.
The 15-nation Security Council is expected to discuss the report next Monday.
Kinshasa and Kigali have both denied providing help to rebel groups.