Eurozone finance ministers are preparing for a vital third meeting, in Brussels, to try to solve the crisis over Greece's bail-out.
Greece has put forward a proposal for a six-month extension of its Eurozone loan programme instead of renewing its existing bailout deal, which comes with harsh austerity measures.
But Germany has already rejected this.
The existing bailout deal expires at the end of the month and Greece could run out of money without a new accord.
Prime Minister Alexis Tsipras won elections in late January on a platform of rejecting the austerity measures tied to the bailout.
A Greek government source said on Thursday the Eurogroup had "just two choices: to accept or reject the Greek request. We will now discover who wants to find a solution, and who does not".
Also on Friday, the Greek parliament is set to vote on a series of social reform bills that flout its bailout obligations.
A German finance ministry spokesman said Greece's new suggestion was "not a substantial proposal for a solution".
Later on Thursday, Mr Tsipras spoke with German Chancellor Angela Merkel by telephone.
One Greek government official described the 50-minute call as "constructive", adding: "The conversation was held in a positive climate, geared towards finding a mutually beneficial solution for Greece and the eurozone."
The United States urged European leaders and Greece to all make concessions. Treasury Secretary Jack Lew spoke by phone with several senior European officials.
Meanwhile, Italian Prime Minister Matteo Renzi spoke to Mr Tsipras and European Commission President Jean-Claude Juncker in a further effort to strike a deal, an Italian government source said.
Greece formally requested a six-month extension to its eurozone loan agreement on Thursday, offering major concessions as it raced to avoid running out of cash within weeks.
The BBC's Mark Lowen in Athens says Germany's swift rejection of the proposal suggested "a rift between Brussels and Berlin at the very highest level".
A top European official said the stand-off had come down to a clash of personalities between German Finance Minister Wolfgang Schaeuble, who objected to the negotiating style of his Greek counterpart, Yanis Varoufakis.
"There is a real problem of personalities and I understand that. Schaeuble is outraged by comments made by Varoufakis," the official said.
The Greek request letter includes a pledge to maintain "fiscal balance" for a six-month period, while it negotiates with eurozone partners.
The Greek government was also reported as saying that its extension proposal was in order to give Athens enough time, without the threat of "blackmail and time deficits", to draw up a new agreement with Europe for growth over the next four years.
The German finance ministry spokesman said the Greek request was an attempt at "bridge financing, without meeting the requirements of the programme. The letter does not meet the criteria agreed upon in the Eurogroup on Monday."
The apparent deadlock in Brussels is hardly surprising, because the two sides have very different goals.
The Greek government wants to scrap the current bailout deal, because of the very painful programme of spending cuts and other austerity measures that come with it. Instead, it wants a bridging loan to help it meet its short term needs, while a new deal is hammered out. Having been elected on an anti-austerity ticket, it can't afford to back down, or it will be accused of betraying Greek voters.
But other members of the eurozone, and Germany in particular, have a very different agenda. They want Greece to accept an extension to the current deal - with the rather uncertain promise of "flexibility" if it plays ball.
They don't want to show any signs of weakness, because of the signal that could send to anti-austerity movements in countries such as Spain, Portugal or Cyprus.
It would also be politically toxic in Germany, where many voters dislike the idea that they are paying for Greece's mistakes.
That doesn't mean a compromise is impossible. It simply means any deal would have to be presented as both an end to the current austerity programme and a continuation of it. A political fudge, in other words - and Brussels has plenty of experience in putting those together. So a short-term solution is possible, but far from certain.
But shortly before the German rejection of the proposal, a European Commission spokesman said that Mr Juncker regarded the letter as a "positive sign, which, in his assessment, could pave the way for a reasonable compromise in the interest of the financial stability in the euro area as a whole".
"The detailed assessment of the [Greek loan] letter and the response is now up to the Eurogroup," the spokesman added, referring to Friday's meeting.
Any agreement on Friday must be unanimous.
Credit: The BBC