Speaking to reporters in a press conference, he called for changes to the constitution to prevent political parties having a monopoly of power.
"I am deeply disturbed that the nation, the state, South Africa, has been subordinated to a political party," he said.
"One is deeply saddened that what we are going through is totally unnecessary. It shouldn't in fact have happened."
Mbeki announced his resignation on Sunday after a months-long power struggle with the leader of the African National Congress (ANC), Jacob Zuma.
Tutu said that although Mbeki had made enemies within the ANC because of his "intolerance of challenges and dissent", he should still have been left to complete his second five-year term, which was due to end in April 2009.
"It is good old-fashioned tit-for-tat. Our country deserves better. The way of retribution leads to a banana republic," Tutu said, adding that Mbeki had been publicly humiliated by the incident.
He went on to express his disappointment at the conflict between political leaders who had once been democracy activists united in the struggle against South Africa's apartheid regime, including Mbeki and Zuma.
"Is this what we endured torture for? Exile? Is this what we swallowed tear gas for? Of course it isn't," said the former archbishop of Cape Town.
"We have a wonderful country with wonderful people of all races. For goodness sake, let us not sabotage it. Please let us, the elders, not go to our graves with broken hearts."
He also repeated his personal concerns over the suitability of Zuma, caught in allegations of corruption, as next president. South Africa's next leader would have to be "as uncorrupted as possible", said Tutu.
