President Hamid Karzai's rival in the second round of the Afghan presidential election announced in Kabul on Sunday that he was withdrawing from the run-off poll.
Abdullah Abdullah had set out conditions he wanted to be met for the contest to be considered fair.
But Karzai rejected his demand that election officials who presided over the first round should be dismissed.
Earlier, US Secretary of State Hillary Clinton said a pullout would not invalidate the legitimacy of the vote.
"We see that happen in our own country where, for whatever combination of reasons, one of the candidates decides not to go forward," Hillary Clinton told reporters in the United Arab Emirates.
But the sources in Kabul said Dr Abdullah's withdrawal means this is uncharted territory, and it is unclear what will happen next.
There has been much speculation that there could be some kind of deal, which would see Dr Abdullah pull out - and possibly the emergence of a national unity government, the sources added.
There are many in Hamid Karzai's camp who have been saying in recent days that if Dr Abdullah did pull out they would still want President Karzai to go all the way through to a scheduled vote next Saturday.
