Democrats have dropped a government spending bill in the US Senate combining close to $1.3tn (£831bn) of unfinished budget proposals.
Democratic Senate Majority Leader Harry Reid said lawmakers would instead work to extend funding on a temporary basis.
Democrats had hoped to pass the 1,924-page bill, which would have funded everything from national defence to scientific research, before January.
The move is being seen as a chance for Republicans to enact big spending cuts.
The measure was introduced earlier this week and would have set funding levels for government programmes until 30 September 2011 - the end of the fiscal year.
Mr Reid gave up efforts to pass it after Senate Minority Leader Mitch McConnell and eight other Republicans decided not to back the measure.
The Republican backing probably would have provided enough votes for the bill - which contained more than 6,700 smaller projects, known as earmarks - to pass.
Mr McConnell said he could not believe Democrats would try to pass legislation that typically would take months to debate in the days leading up to the Christmas holiday.
Mr Reid said he would work with Republicans to produce a funding bill to keep the federal government running into the beginning of 2011.
The move reflects the power the Republicans gained in November's mid-term elections, when they won control of the House as well as extra Senate seats.
Congress is also being pushed to pass a compromise tax cut deal backed by President Barack Obama, and a nuclear arms treaty with Russia.
Time is running out to get legislation passed during the lame duck session of Congress, which refers to the time between November's congressional elections and the January start of the new Congress.