The talks are due to take place in the Kazakh capital Astana in late January but the rebels said they were pulling out of discussions due to "violations" by Damascus of a four-day old truce.
The talks are being organised by Russia, which supports the Syrian regime, and Turkey and Iran, which back the rebels.
"As these violations are continuing, the rebel factions announce... The freezing of all discussion linked to the Astana negotiations," they said in a joint statement.
For the past two weeks, even before the start of a nationwide truce brokered by Ankara and Moscow, Syria's air force has launched almost daily bombing raids on Wadi Barada, some 15 kilometres from Damascus.
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"Any (advance) on the ground goes against the (ceasefire) agreement and if things don't return to how they were before, the accord will be considered null and void," the rebel statement added.
"Regime forces and fighters from Lebanon's Hezbollah group are advancing in the region and are now on the outskirts of Ain al-Fijeh, the primary water source in the area," said Rami Abdel Rahman, director of the monitoring group.
He said government troops and allied fighters were engaged in fierce clashes with rebels, including former Al-Qaeda affiliate Fateh al-Sham Front, a claim denied by opposition fighters.
Two civilians were shot dead by snipers and two other civilians were killed in regime bombardment of the town of Rastan in central Homs province, the Observatory added.
The Syrian government says rebels have targeted key water infrastructure, causing leaking fuel to poison water supplies and then cutting it off altogether.
The United Nations says at least four million people in Damascus have been without water since December 22.