Abdullah Abdullah announced today that he would not participate in Afghanistan's runoff election next week, claiming it would result in widespread fraud.

To cheers from thousands of supporters in Kabul, Abdullah said he had not taken lightly his decision, which is likely to prolong the political crisis in the country.

"We will not take part, because of the wrongdoing of the Independent Election Commission and the abuse of power by the government," Abdullah told his supporters.

His running mate, Homayoun Shah Assefy, said: "We are no longer a candidate and we wish Mr Karzai luck."

Abdullah stopped short of calling for a boycott – a decision that will please western diplomats keen to avoid civil unrest. But the prolonged political uncertainty will further complicate Barack Obama's deliberations over whether to send up to 40,000 more troops into Afghanistan.

The White House has been waiting for a new government in Kabul before announcing its decision. Yesterday Hillary Clinton, the US secretary of state, said the legitimacy of the election would not be affected if Abdullah withdrew.

"I don't think it has anything to do with the legitimacy of the election," she said. "It's a personal choice which may or may not be made."

Nadjib Yussufi, a senior campaign official, said any attempt to anoint Hamid Karzai as president without a second vote would lack credibility. He said that if Karzai had "political wisdom" he would call a traditional meeting of all the country's tribal leaders and power brokers to decide a way forward.

Abdullah's announcement came after the failure of last-minute attempts to head off another crisis in the presidential election saga. Kai Eide, the senior United Nations official in Afghanistan, led a series of talks with Karzai to lay the ground for a power-sharing deal in which Abdullah would concede defeat, making a second round unnecessary.

In return, the former foreign minister had asked for a number of changes to the Afghan election body, including the sacking of its lead commissioner. But almost all of Abdullah's demands were rejected, leaving him no choice but to drop out, his supporters say.

"He knows that there is no point in taking part in an election where the odds are illegally stacked against him," said one senior member of Abdullah's camp last night.

Many western observers agreed with some of Abdullah's demands, including a call for the replacement of Independent Election Commission (IEC) chairman, Azizullah Ludin, who has been heavily criticised for appearing to be biased in favour of Karzai.

Eide organised a meeting between Karzai and Abdullah last week to discuss a solution, including plans for a power-sharing deal. But an official with knowledge of the conversation said Karzai was unwilling to compromise.

"Abdullah's demands were low – he would have taken a job as head of the constitutional reform committee in order to meet his campaign pledges. But Karzai wasn't interested," he said.

Some western diplomats had argued that because Karzai received more votes than any other candidate in the first round he should be accepted as the winner, even though he did not receive the 50% of the vote that the constitution says must be achieved for outright victory.

According to the Electoral Complaints Commission, Karzai got 48.2% after almost a million of his votes were ruled out as fraudulent, although his share would have been far lower if the commission's fraud investigation had been more far-reaching.

Afzal Nuristani, a criminal defence lawyer, said that crowning Karzai without a second round would "not be legitimate. If Karzai claimed power under those circumstances he will bring the country into chaos – this problem can only be solved politically."

The IEC has claimed that it has the right to settle the dispute, although that is unlikely to be widely accepted because its Karzai-appointed commissioners have consistently taken decisions favouring their man.

Another solution would be for the supreme court to rule on the matter, although it is also seen as a pro-Karzai body that does not have the power to make new law.

Saeed Rahi, another lawyer, said the only solution was for a traditional gathering of all the country's power brokers, or loya jirga, to make a decision. "The supreme court may be able to prolong or extend Karzai's term in office by a few months as an emergency measure, but only as an interim measure until a loya jirga could be established."

There is almost no appetite for a second round of voting, particularly among western countries which fear their troops will be put at risk by Taliban attempts to disrupt the poll. Security fears were underlined last week when a team of militants attacked a guesthouse in central Kabul, killing five UN staff.

"Whichever way you look at it, Karzai is not going to be a legitimate leader," said one western diplomat. "He is soiled goods now and people don't know how the relationship is going to work with the international community in the coming year. The only person to have come out well is Abdullah, who has done a great job of elevating himself as a statesman on the international stage."