Boris Johnson has put the UK on course for a no-deal Brexit on 31 December, having announced that he is ready to walk away from trade talks with the EU.
No 10 argued there was "no point" in discussions continuing next week unless the EU was prepared to discuss the detailed legal text of a partnership.
Johnson said that the EU had “abandoned the idea of a free trade deal” by not giving in to the U.K’s demand for a generous free trade agreement like the one the bloc has with Canada.
“Unless there is a fundamental change of approach, we’re going to go for the Australia solution,” said Mr Johnson.
It comes as German chancellor Angela Merkel said both sides would have to make concessions. French president Emmanuel Macron said the UK needed a deal more than the EU, and denied fishing rights was the main stumbling block.
UK chief negotiator Lord Frost said he had told EU counterpart Michel Barnier there was now no "basis" for planned talks on Monday.
Number 10 said the two sides had agreed to talk again next week - by phone.
The prime minister had set this week's EU summit as the deadline for the two sides to agree a deal. However,there are still major disagreements over fishing rights and state help for businesses.
The EU said it saw several more weeks of detailed talks ahead which would by their very nature have to deal with legal wording, and said both sides would have to budge.
While Australia has no comprehensive trade deal with the EU, Johnson insisted Britain would “prosper mightily” under those conditions, which would mean tariffs and other barriers between the UK and its biggest trading partner.
Sectors such as automaking and agriculture, which face heavy tariffs, say they could be wiped out.
Ian Wright, chief executive of the Food and Drink Federation, said Johnson’s statement had put Britain “into very dangerous territory.”
Labour's shadow Cabinet Office minister Rachel Reeves urged the UK government to "step back from the brink" and "stop posturing".
"Any tariffs or any delays at the border will make it harder for goods to flow freely, whether those are foods or medicines," she said.
Some EU figures fear Boris Johnson still doesn't know if he actually wants a deal and is trying to buy time while he grapples with the Covid crisis.
Britain officially left the EU on 31 January but remains part of its economic structures until 31 December 2020. The two sides have been trying to strike a deal on trade and other relations for almost a year.