"The last weeks and months I have done all I can to bring this task to a successful conclusion," the Flemish Christian Democrat leader said.
"Unfortunately that has not been possible. Our country needs a stable government and reforms that will permit it to tackle its problems head on."
It is the second time since the June 10 general election that Leterme has given up trying to form a government.
The Flemish majority in northern Belgium wants more power devolved to its own region.
The poorer Walloons in the south fear such a move would cause them to lose out politically and financially.
|"I think this has proven that you |
can't form a government that represents the interests of both the north and south of the country"
Joris Van Hauthem, Vlaams Belang party
Leterme's move came after he issued an ultimatum to four other neogotiating parties to agree to three key points by Saturday morning.
When one of the francophone parties refused to endorse his proposals on state reform, that proved the last straw for Leterme.
A spokesman for the far-right Vlaams Belang party, which was not involved in the coalition talks, said the failure to form a government demonstrated that a federal administration was no longer possible.
"I think this has proven that you can't form a government that represents the interests of both the north and south of the country," Senator Joris Van Hauthem, head of the party's Senate group, said.
"You don't need to be a separatist to realise that."
However, splitting the state would be problematic due to the difficulties of separating the institution and dividing the heavy national debt.
The future of Brussels, a separate region within Flanders that is officially bilingual but with a large majority of French-speakers, would also have to be settled.