"It seems obvious to me, to Canada, that the European Union is incapable now of having an international agreement, even with a country with such European values as Canada, and even with a country as kind and patient as Canada," Freeland said on Belgian television.
"Canada is disappointed, me personally, I'm very disappointed," Freeland said in unusually strong and emotional remarks.
"I worked very, very hard, but I think it's impossible. We have decided to return home and I am very, very sad. It's really emotional for me. The only good thing for me is that tomorrow morning I will be with my three children," she added.
Paul Magnette, Wallonia's head of government, had earlier dismissed the latest compromise offer as "insufficient"
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He said: "I feel there is a will to advance but there remain difficulties."
A source at the European Commission, the executive of the 28-nation EU, left open the possibility the talks could resume.
"Talks that started early this morning with the regional government of Wallonia have come to a halt. The European Commission doesn't consider that this is the end of the process," the source told AFP.
Canadian Prime Minister Justin Trudeau had planned to visit Brussels next week to sign the deal.