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The impasse - apparently rooted in a power struggle between the Justice and Development Party (PJD) and figures close to the royal palace - threatens to provoke a political crisis and possibly even new elections.
King Mohammed VI tasked Prime Minister Abdelilah Benkirane with forming a new government after his PJD won the most seats in October elections.
The PJD rose to power after the king relinquished some of his near-absolute power following Arab Spring-inspired protests in 2011, with Benkirane heading a previous coalition government for five years.
The PJD faced a serious challenge in October's vote from the secularist Authenticity and Modernity Party (PAM), which campaigned against the "Islamisation" of Moroccan society and came a strong second.
Since the vote Benkirane has been haggling to rebuild his coalition, which had brought together a range of parties including other Islamists, liberals and ex-Communists.
But he has proven unable to secure the 198 of 395 seats needed for a majority and in a surprise statement on Sunday said he was breaking off talks with two parties, the centre-right National Rally of Independence (RNI) and the Popular Movement (MP).
Analysts say the talks have become a power struggle between Benkirane and RNI chief Aziz Akhannouch, a billionaire outgoing agricultural minister who is close to the king.
"Akhannouch's objective seems clear: to deprive Benkirane of oxygen," political analyst Mohamed Ennaji said. Mohammed Madani, another political analyst and law professor in Rabat, said the failure of the coalition talks reflects a wider power struggle.
"Akhannouch is not acting alone, he is the spokesman for the centre of power," Madani said. "It's about showing that what counts is not electoral success but closeness to the palace."
The PJD was the first party to win an election in Morocco and the first to lead a government, raising concerns among many in a country traditionally among the more secular of Arab nations.
Its 2011 win came after the king gave up some of his power after thousands took to the streets in peaceful demonstrations inspired by the wave of uprisings across the Arab world.
Among the reforms were a requirement for the king to nominate a prime minister from the party that won the most seats in Morocco's parliament. The PJD struggled in power to tackle rising unemployment and fulfil promises to crack down on corruption.
Social tensions since the election have seen a wave of demonstrations in the Rif, an ethnically Berber region in Morocco's north.
The palace says it stands above the country's politics but analysts say it may have no choice but to intervene. "The constitution is silent on the question of a prime minister-designate being unable to form a majority.
It will fall then to the king to interpret the constitution," said Abdellah Tourabi, a Moroccan political researcher.
A decision to call fresh elections is possible, but unlikely, he said. The head of another party could be asked to form a government instead "but this will cause political tensions" with the PJD.
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