Mehsud, accused by the last government of orchestrating the assassination of Benazir Bhutto, the late Pakistani prime minister, made the decision after meeting tribal elders acting as mediators.
"The government refused to pull out its forces from the tribal areas which forced Mehsud to call off the talks," Omar.
Mehsud declared a unilateral truce last week with security forces in the lawless tribal regions bordering Afghanistan, after officials said the government had drafted a peace agreement with the group.
The deal included the withdrawal of government soldiers from some border areas, as well as the exchange of captives on both sides and a pledge not to launch attacks.
Omar also quoted the rebel commander as telling tribal elders on Monday that there were "elements who do not want peace in this country", adding that the negotiating team were "disappointed".
Pakistan's new government defeated the backers of president Pervez Musharraf in elections in February and has pledged to completely overhaul the key US ally's pursuit of the "war on terror".
The peace talks were aimed at making permanent a five-week lull in a wave of suicide attacks that has killed more than 1,000 people in Pakistan since the start of 2007.