The two sides had just opened formal talks in the Netherlands when chief government negotiator Jesus Dureza objected to the communists' telling guerillas to intensify attacks in response to President Rodrigo Duterte's declaration of martial law in parts of the country.
"The government panel is now left without any other recourse but to announce... That it will not proceed to participate in the fifth round of peace negotiations," he said.
He added that talks would not resume until there were indications of an "environment conducive to achieving just and sustainable peace".
Communists insurgents, who are active in wide areas of the archipelago, including the south, responded to his declaration by ordering their guerrillas to "carry out more tactical offensives" against state forces.
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Senior rebel negotiator Luis Jalandoni said that despite the government's ultimatum, the guerrillas' attacks would continue.
Government negotiator Silvestre Bello said the rebel panel had originally asked for a 10-minute recess to discuss the government's threat but refused to return to the table afterwards.
Peace talks have been conducted on and off for 30 years, seeing a revival after Duterte, a self-declared socialist was elected president last year.
However the fiery Duterte has also taken strong positions against the rebels, imposing conditions including that the guerrillas stop extortion and arson activities.
Duterte angrily called off the peace talks in February after the collapse of unilateral ceasefires that saw guerrillas killing several soldiers and police in a series of attacks.