Makoni, who challenged Mugabe in disputed March 29 elections, told reporters in Johannesburg that Tsvangirai must negotiate a five-year transitional government.
"Normal political conduct and behaviour is not possible in the circumstances within Zimbabwe at the moment. I don't believe we can have free elections under these circumstances, that's why we are suggesting that the run-off will not place," he said.
Makoni came a distant third in the March election in which Tsvangirai beat Mugabe but failed to reach the absolute majority needed to avoid a second round.
South Africa's Business Day newspaper reported on Tuesday ZANU-PF and MDC were in talks that could lead to the cancellation of the poll.
UNITY GOVERNMENT UNLIKELY
Lovemore Madhuku, chairman of Zimbabwean political pressure group National Constitutional Assembly (NCA), said a government of national unity was unlikely in the short term.
"I know that a lot of people are talking about that, but I don't see that happening in the coming months because of the polarisation between ZANU-PF and the MDC," he told Reuters.
Human Rights Watch said on Monday a free and fair poll was impossible because of a systematic campaign of murder and torture unleashed by ZANU-PF in which at least 36 people had died. Mugabe blames his foes for the bloodshed.
Jacob Zuma, leader of the ruling party in Zimbabwe's powerful neighbour South Africa, said during a tour of India on Tuesday that he was alarmed and anxious about the reports of violence and called on ZANU-PF to ensure free campaigning.
Business Day, quoting negotiators for both sides, said ZANU-PF and the MDC were in talks mediated by South African President Thabo Mbeki.
Mbeki spokesman Mukoni Ratshitanga said he was unaware of the talks.
Zuma, who has been outspoken about the Zimbabwe crisis, is frontrunner to succeed Mbeki next year after toppling him as leader of the ruling African National Congress (ANC). Mbeki has been widely criticised for his softly softly approach to Mugabe.
In a statement, Zimbabwe Lawyers for Human Rights said two lawyers had been forced to flee to South Africa and a third had gone into hiding over threats to their lives for handling cases involving opposition officials and activists.
"In recent weeks, the operating environment for members of the legal profession, more particularly human rights lawyers, has shrunk to the extent that it is becoming almost impossible for them, as officers of the court, to perform their professional duties and functions," it said.
