The official, who has been intimately involved in three weeks of negotiations, accused Russia of stalling for time in an effort to keep observers from the Organization for Security and Cooperation in Europe out of the two breakaway regions.
"It has become clear that Russia doesn't want any agreement. I think they're afraid of what the observers will see," the diplomat told The Associated Press, speaking on condition of anonymity because he was not authorized to publicly discuss the talks.
"The talks have collapsed and there are no further discussions under way," he said.
The Vienna-based OSCE, Europe's largest security organization, now has a total of 28 monitors in Georgia. It has been trying to boost that presence to 100 in the aftermath of Russia's invasion last month, which came after Georgia attacked separatist South Ossetia.
But efforts to get Russia to agree on terms of the observers' deployment have bogged down over the central question of whether the unarmed military monitors would be allowed inside the two contested regions.
"For three weeks now, we have been fighting on how to deploy these extra 80 monitors without delay," the Western official said. "Everyone but Russia has said they should be able to get into all of Georgia, including South Ossetia."
Confidential OSCE documents obtained by the AP detail how Russian forces allegedly have restricted the monitors' movements.
"The freedom of movement of the OSCE military monitoring officers ... has been hindered and conditioned," said one document, issued as recently as Wednesday.
Another report, from Thursday, said all 28 observers "continue to encounter difficulties in their movement to most of the areas of their deployment."
"They are denied access to South Ossetia by the Russian Armed Forces deployed in the southern part of the area ... They are now also denied access to the Akhalgori district by South Ossetian armed personnel deployed along the administrative border of South Ossetia, where access had been previously granted," it said.
In addition to the OSCE monitors, the European Union has been racing to prepare 200 unarmed observers for Georgia by Oct. 1.
Under terms of an agreement with Russian President Dmitry Medvedev brokered earlier this week by French leader Nikolas Sarkozy, Russia would withdraw its forces to areas they held prior to the hostilities within a month after the EU observers are in place.
Russia, however, has said it would keep 7,600 troops in the breakaway regions themselves for the foreseeable future, tightening its grip there.
The Kremlin's actions at the OSCE "throw into question the sincerity" of Moscow's pledge to pull back, the diplomat said Friday, after Russia rejected what he characterized as a "final compromise."
The official, along with another Western diplomat accredited to the 56-nation OSCE, told the AP that Russia introduced more than a dozen different proposals in the talks - only to withdraw them abruptly or reverse its position.
"Russia has gotten more and more hard-line in recent days," he said. "Our view is that they don't want the monitors there because they would report on how many troops are there, and where, and because they'll see villages burned" and evidence of other atrocities.
In Moscow, Foreign Ministry spokesman Igor Frolov insisted that Russia's position was based on the Sarkozy-Medvedev cease-fire agreement, which he said mentions nothing about increasing the number of OSCE observers in South Ossetia or Abkhazia.
However, the OSCE's permanent council - which includes Russia - agreed Aug. 19 to boost the number of monitors to 100 to implement a cease-fire agreement reached a week earlier.
Russia recognized South Ossetia and Abkhazia as independent nations after last month's war with Georgia over the regions. Both have had de-facto independence for more than a decade since breaking away from Georgian control in the early 1990s.