The rebels have attacked several towns since a court blocked the deal
The Philippine government has pulled out of a controversial autonomy deal with Muslim separatist rebels in the south, following days of fighting.
A presidential spokeswoman described the move as a "painful step", but said leaders were still open to talks.
The government had agreed to expand an existing Muslim autonomous zone in a bid to end decades of violence.
But Christian communities opposed the deal and when the Supreme Court blocked it, the rebels launched attacks.
Earlier this week, raids by guerrillas from the Moro Islamic Liberation Front (MILF) on several towns near the border of the existing autonomous zone in the southern island of Mindanao left at least 30 people dead.
The government had hoped that the autonomy deal - which would see the existing region expanded by 712 villages - would kick-start talks with the rebels.
But on 4 August the Supreme Court suspended the agreement after Christian lawmakers argued it was unconstitutional and would increase sectarian tensions.
Fierce fighting then broke out after several hundred guerrillas occupied villages in North Cotabato province.
Troops drove them out but the rebels then raided towns in the nearby province of Lanao del Norte.
Tens of thousands of people have been displaced by the fighting, villages have been burned and shops looted.
"The cancellation of the memorandum of agreement is a painful step in our collective effort to come to an agreement with the MILF," Lorelei Fajardo, a spokeswoman for President Gloria Arroyo, said in a statement.
President Arroyo "will seek a new agreement within the boundaries of law set within the constitution," she said.
"Furthermore, the president will not allow adventurism by MILF forces to pressure government to sign any agreement even if it is for peace."
The MILF, who have blamed the violence on two renegade commanders, rejected the idea of renegotiating the deal.
"We will not renegotiate, it's already finished," Reuters news agency quoted Mohaqher Iqbal, the group's chief negotiator, as saying. "It's been three years and eight months."
"They studied it and scheduled the signing and then they cancel everything. What is that?"
More than 100,000 people have been killed in almost four decades of fighting in the south.
The army is now chasing two rebel commanders blamed for Monday's particularly brutal raids, in which more than 30 civilians were shot or hacked to death.