"The lack of willingness by the parties to seek a peaceful transition, and the push towards advancing military positions is increasing the losses on both sides,'' Mood said.
The decision came after weeks of escalating attacks, including reports of several mass killings that have left dozens dead.
The U.S. reiterated its call for the Assad regime to comply with the plan, "including the full implementation of a cease-fire.''
Underscoring the dangers, activists reported at least 50 people killed in clashes and shelling in several Syrian cities.
The peace plan's near-collapse has increased pressure on the international community, including President Bashar Assad's staunch allies Russia and China, to find another solution. But there has been little appetite for the type of military intervention that helped oust Libya's Moammar Gadhafi, and several rounds of sanctions have failed to stop the bloodshed.
Najib Ghadbian of the main Syrian opposition group, the Syrian National Council, said the concerns expressed by the U.N. mission could pressure Russia to allow more censure of Assad's regime.
"They are really under pressure to say `OK, what's next?''' he said. Are they going to continue to sabotage other ideas to protect civilians in Syria?''
Despite fears that violence could significantly worsen without U.N. monitors on the ground, activist Rami Abdul-Rahman of the Britain-based Syrian Observatory for Human Rights said their numbers were too small, and the conflict too large, for them to have any use.
"A lot of crimes happened in Syria, and they couldn't do anything,'' he said. "The situation can't get worse than this: are we afraid that it's a civil war? Well it is a civil war.''
The Syrian government, meanwhile, said it had informed Mood it understood the U.N. observers' decision and blamed rebels for the escalation in fighting.
"Armed terrorist groups have conducted, since the signing of the Annan plan, an increase in criminal operations that have targeted, many times, the observers, and threatened their lives,'' the Syrian foreign ministry said in a statement. Damascus frequently refers to rebels as "terrorists'' instead of Syrians seeking reforms.
The opposition, for its part, has blamed the regime for the attacks near the observers.
Last week, a U.N. convoy was blocked and attacked with stones, metal rods and gunfire by an angry crowd as it was trying to head to the town of Haffa in the coastal Latakia region, where troops had been battling rebels for a week.
The observers only managed to enter once government troops had seized the area back from the rebels.
On May 15, a roadside bomb damaged the observers' vehicles shortly after they met with Syrian rebels in the northern town of Khan Sheikoun. A week earlier, a roadside bomb struck a Syrian military truck in the south of the country just seconds after Mood drove by in a convoy.
National Security Council spokesman Tommy Vietor said the Obama administration was now consulting with allies about "next steps toward a Syrian-led political transition'' in compliance with the U.N. resolutions setting up the peace plan. He didn't give further details.
Opposition groups say more than 14,000 civilians and rebels have been killed since the uprising began in March 2011. The initially peaceful protests seeking Assad's ouster have morphed into an armed insurgency as his opponents take up weapons.
Abdul-Rahman, of the Syrian Observatory for Human Rights, has said more than 3,400 Syrian soldiers and pro-government militiamen have been killed.
The Syrian government has been waging a fierce offensive through towns and villages nationwide for the past week, trying to pound out rebels by shelling urban areas with tanks and attack helicopters. Rebels also have attacked Syrian forces, mostly trying to burn out their tanks.
The Observatory said more than 50 people were killed in clashes and shelling in towns close to Damascus, in the central provinces of Homs and Hama, in the seaside province of Latakia, the northern provinces of Idlib and Deir al-Zour and the southern province of Daraa.
Those included 12 people, including a man, his wife and child, who died during overnight government shelling in the Damascus suburb of Douma and seven killed by a mortar shell that ripped apart a bakery in Homs, according to Abdul-Rahman.
The Observatory said that the bodies of 11 people including one woman had been discovered in the capital's suburb of Saqba. It said some of them were "butchered.'' A video posted online showed a group of lifeless men crammed into a room with stab wounds, blood still spilling from one of them. The LCC reported 13 victims and provided the names of nine, saying some were "slaughtered with knives.''
Rebels appeared to kill an accused regime collaborator in an amateur video that was uploaded Saturday, repeatedly shooting his lifeless body.
There was no way of verifying government or activist claims because Syria does not allow reporters work independently. With U.N. observers now grounded, not even partial, independent confirmation of the deaths was available.
Syria's state news agency also said their forces killed a top al-Qaeda fighter on Saturday. They accused Walid Ahmed al-Ayish of organizing suicide car bombings in Damascus over the past few months.
-AP
