Mr Hazare, who undertook a hunger strike in April to protest against government inaction on corruption, said he would resume his fast on 16 August.
The two sides are deadlocked over how powerful a new anti-graft ombudsman should be.
India has recently been hit by a string of high-profile corruption scandals.
Civil society members, led by Mr Hazare, have been pushing the government for a strong ombudsman that will have the powers to investigate corruption charges against the prime minister, senior judges and MPs, among others.
The government has reportedly refused to include the prime minister and senior judiciary under the ombudsman.
However, a government minister said it was committed to draft a "strong and sound" Jan Lokpal Bill (Citizen's Ombudsman Bill) by the end of June.
Mr Hazare said that the government had "no intention of bringing in an effective Lokpal Bill and it backtracked yesterday on the promise to consider our suggestions, so I have resume my fast from 16 August".
The government hit back saying civil society representatives "cannot threaten and negotiate at the same time".
"This is not the way forward. The government is not going to get diverted by abuses and slander," Telecommunications Minister Kapil Sibal said.
After seven meetings with the government, civil society members said on Wednesday that the government "wants to kill the Lokpal Bill before it was born".
The two sides are expected to meet on 20 and 21 June in what will be their last meetings.
A hunger strike by Mr Hazare in April heaped pressure on the government, which is beset by corruption scandals.
Some of the recent corruption scandals to have rocked India include a multi-billion dollar alleged telecoms scam, alleged financial malpractices in connection with the Commonwealth Games, which India hosted, and allegations that houses for war widows were diverted to civil servants.
Critics of the government say that recent scandals point to a pervasive culture of corruption in Mr Singh's administration - adding to the difficulties of a politician once seen as India's most honest.
A recent survey said corruption in India cost billions of dollars and threatened to derail growth.
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