An interceptor rocket designed to destroy incoming ballistic missiles did not succeed in hitting a dummy warhead launched over the Pacific Ocean.
The Pentagon says the interceptor, fired from an atoll in the Pacific ocean, never separated from its lift-off rocket.
The failure is being seen as a major setback to Pentagon plans to install a full missile defence system over the United States by 2005.
International concern
Russia, which objects to America's National Missile Defence (NMD) programme as a violation of the 1972 Anti-Ballistic Missile treaty, said the test showed the system was unworkable.
General Vladimir Yakovlev, commander of Russia's strategic forces, told Itar-Tass that any attempts to deploy an NMD shield would be a waste of money.
Chinese arms control negotiators reportedly expressed concern about the system at their talks with US officials in Beijing.
However, top US negotiator John Holum said the two days of talks had been extremely constructive and had laid the foundations for renewed dialogue.
China ended that dialogue in 1999 year in response to the US bombing of the Chinese embassy in Belgrade during the Kosovo conflict.
'Disappointed'
Of three full scale tests since President Clinton gave the go-ahead in 1998, only one test has succeeded. And the results of that test have been questioned by several US scientists.
Mr Clinton is expected to decide before he leaves office next January whether to approve a full scale missile defence system - with a projected price tag of $60bn.
But this latest failure could now delay that decision.
The mock Minuteman II warhead, fired from Vandenberg Air Force Base in California at 0420 GMT, should have been hit by the interceptor at a speed of 24,000 km/h (15,000 mph).
"We did not intercept the warhead tonight. We are disappointed," said Lieutenant General Ronald Kadish, director of the missile defence programme, at a Pentagon news conference on Saturday.
He said initial reports indicated that the "hit-to-kill" weapon fired from the Kwajalein Atoll in the central Pacific ocean did not separate from its launch missile.
"It was looking for a second-stage separation signal," General Kadish said. "It did not get that."
He said it would be several days before the Pentagon had a full picture of what happened during the test, but added: "We have more engineering work to do."
"This is rocket science - things do happen."
The Pentagon was planning another test in the autumn, but correspondents say this latest failure is likely to result in further tests being delayed.
A technical problem had earlier caused a two-hour postponement of the launch.
Protests
The environmental group Greenpeace said that two of its activists had been arrested near the launch site of the interceptor missile, during an attempt to disrupt the test.
A Greenpeace ship was also reported to be inside the danger zone designated for the test.
Before the launch, 50 American Nobel laureates sent an open letter to US President Bill Clinton urging him to abandon the project, which they called "premature, wasteful and dangerous".
Many commentators in Europe have compared it to former President Reagan's controversial Strategic Defence Initiative, better known as 'Star Wars'.
That plan called for a system which could shoot down enemy missiles from space, using lasers.
The Pentagon says its anti-ballistic missile system is less ambitious and is aimed primarily at repulsing attacks by what it calls "rogue states", such as Iraq or North Korea.