Mr Clegg said he was dropping the Lords reform bill after David Cameron informed him that an "insufficient number" of Tory MPs were prepared to support the changes.
He insisted that the Liberal Democrats would carry on in the coalition, despite the failure of the Tories to deliver on their promises.
The thing I care about most - the central purpose of the Liberal Democrats in this Government - is to build a fairer society.
We will continue with that critical work. We will continue to anchor this Government firmly in the centre ground.
Nick Clegg confirmed that the Liberal Democrats would not leave the coalition and said that the personal relationship between himself and David Cameron was, "fine."
Nick Clegg has denied that his announcements will mean the 'beginning of the end for the coalition', instead labelling it instead, "an amendment to the contract."
Deputy Prime Minister Nick Clegg today accused the Tories of breaking the coalition agreement by not proceeding with House of Lords reform and said his party would be withdrawing support for constituency boundary changes in return.
He said: "The Conservative Party is not honouring its commitment to Lords reform and as a result part of our contract has now been broken.
"Clearly I cannot permit a situation where Conservative rebels can pick and chose the parts of the contracts they like while Liberal Democrat MPs are bound by the entire agreement.Coalition works on mutual respect, it's a two-way street.
"So I have told the Prime Minister that when the Parliament votes on boundary changes for the 2015 election, Liberal Democrats in Parliament will oppose them."
Nick Clegg said in a press conference today: "I can confirm today that we do not intend to proceed with the Bill in this Parliament.
"To modernisers and campaigners let me say this, I am disappointed as you that we have delivered an elected lords this time round. But Lords reform has always been a case of two steps forward and one step back."
Deputy Prime Minister, Nick Clegg has said:
"I support an elected House of Lords because I believe those that make the laws of the land should be elected by those who have to obey the laws of the land. That's democracy.
"I knew that creating a democratic lords would not be straightforward. This cause has long been blocked by an establishment resistant to change and by the vested interests who benefit from maintaining the power of political patronage."
The former chief executive of the Liberal Democrats thinks that a failure to deliver Lords reform will not threaten the coalition.
– Chris Rennard
Failure to deliver on the most important aspects of constitutional reform would, of course, be a bitter blow to Liberal Democrats.
But the party will also recognise that the constitutional package within the coalition agreement was not the most important aspect of it to the voters, nor was it nearly as important as the state of the economy as a reason for the decision to provide the country with a stable government.
The Shadow Justice Secretary Sadiq Khan has reacted to reports that the Government is to abandon plans to reform the House of Lords:
We warned Nick Clegg that the real roadblock to reforming the Lords was the Tory Party - something we learned the hard way from our 13 years in Government.
Only now is it dawning on Nick Clegg that it is his coalition partner that is tooth-and-nail opposed to reforming and modernising our second chamber.
Nick Clegg marched his MPs through the voting lobbies in support of the harsh and unfair policies of this Tory-led Government in anticipation of receiving Lords reform in return.
But now Nick Clegg may end up with nothing, ruthlessly exposing his naivety.
Millions of people struggling through the tough economic times will question his political priorities.
Plans to reform the House of Lords were outlined by David Cameron and Nick Clegg earlier this year. It would see appointed peers replaced with elected senators.
The Daily Telegraph says although David Cameron was preparing to water down reforms to win over rebels MPs, that plan will now be scrapped. Downing Street reportedly feared debate over reforms could drag on at a time when ministers should be focused on sorting out Britain's economy.