Both sides had hoped to reach an agreement on the "ancestral domain" agenda by January, after years of wrangling.
Once the ancestral domain agreement is made, the two sides are to discuss other issues - such as the type of government for the territory - in order to formulate a comprehensive peace pact, possibly by August 2008, according to officials.
"The MILF was disappointed with the draft because they accused the Philippine government of reneging on what has been agreed upon earlier," Othman Abdul Razak, the chief Malaysian government facilitator, said.
"The meeting has to be called off because the MILF has refused to meet the government panel."
MILF officials could not be immediately be reached for comment.
The MILF, which the military says has 11,000 fighters, is the largest group battling for self-rule in the predominantly Catholic country, but it has had a ceasefire with the government since 2003.
Meanwhile, a suspected fighter from another Muslim group battling the Phillippine government was killed by troops after they carried out a raid on a house in Tawi-Tawi in the south of the archipelago.
Mobin Abdurajak, a leader of the Abu Sayyaf group, was wanted by the US for kidnapping 21 people from the Malaysian resort island of Sipadan in 2000.
The victims were freed after a ransom was paid.
Military officials have often accused MILF of giving sanctuary to members of the Abu Sayyaf extremist group, but it denies it has any links.