|Harry Reid's proposal would have raised the debt limit by $2.4 trillion, while cutting spending by $2.2 trillion [AFP]
The Republican-controlled House of Representatives has rejected a debt ceiling plan proposed by Harry Reid, the Senate Democratic majority leader.
The plan was rejected in a 246 to 173 vote on Saturday, leaving Washington in deadlock ahead of an August 2 deadline to reach a compromise on raising the country's debt ceiling.
The measure would raise the debt limit by $2.4 trillion, while cutting spending by $2.2 trillion.
"The American people agree with us. Democrats and Republicans, independents all agree with us, they agree that there should be a shared sacrifice," said Reid following the vote.
Al Jazeera's Patty Culhane, reporting from Capitol Hill, said: "They are not talking about raising taxes, they're simply talking about cutting federal spending over the next decade.
"So, how do you get to that $4 trillion mark? Basically congress doesn't trust itself."
Earlier, US President Barack Obama had called on legislators to set aside their differences and find a solution to the country's debt crisis.
The wrangling in Washington brought an unusual diplomatic rebuke from the Xinhua news agency, China's state-run media outlet, whcih accused US politicians of being irresponsible and immoral.
In his weekly radio address on Saturday, Obama said Republicans and Democrats had to solve the crisis for the sake of the US people.
"We're in rough agreement on how much spending we need to cut to reduce our deficit," Obama said.
"We agree on a process to tackle tax reform and entitlement reform. There are plenty of ways out of this mess. But there is very little time.
"There are multiple ways to resolve this problem. Congress must find common ground on a plan that can get support from both parties in the House. And it's got to be a plan that I can sign by Tuesday."
Republican plan rejected
Obama's address came a day after the Democrat-led US Senate voted to set aside a House-passed Republican bill to avert the potential ruinous debt default, setting the stage for weekend talks on forging a compromise plan.
Legislators voted 59-41 against Republican House Speaker John Boehner's measure to raise the $14.3 trillion US debt ceiling in two stages to enable Washington to pay its bills past Tuesday's deadline.
Reid said he hoped Republican Senate Republican Minority Leader Mitch McConnell would help work out a final deal, the outlines of which were far from clear with the clock ticking down.
The US economy hit its $14.3 trillion debt ceiling on May 16 and has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally - but can only do so through Tuesday.
Twenty-two House Republicans joined all 188 Democrats voting in opposing Boehner's legislation, while 218 Republicans backed it - eeking out the 216 votes needed for passage in the lower chamber.
A key sticking point was the duration of any debt limit increase: Reid and his Senate allies rejected Boehner's plan in large part because it would set the stage for another high-stakes showdown in a few months.
"We cannot be in this battle all the time," said Reid, whose own plan would spare Obama another politically fraught debt battle as he seeks a second term in the November 2012 elections.
Boehner's bill had sought to pair raising the debt ceiling by $900bn with spending cuts of some $917bn over 10 years, while requiring later debt limit increases be tied to congressional passage of a balanced budget amendment to the US Constitution for ratification by the 50 states.
Reid, whose Democrats oppose tying the debt limit to such amendment, has offered a blueprint that would raise the debt ceiling by $2.7 trillion while cutting spending by some $2.2 trillion over 10 years.
Culhane said the tussle will continue for some time as the two sides fail to make substantial progress towards a compromise.
"Publically the deals that are out there right now will not be passed, cannot become law, will not solve this challenge.
"Behind the scenes, the Democrats and Republicans are trying to figure out someway out of this mess."
The delays make it impossible for congress to strike a deal and send it Obama's desk until the 11th hour, injecting a dangerous level of uncertainty into already rattled financial markets.
A late deal also raises the prospect that the US will lose its top-notch AAA credit rating.