Malawi claims sovereignty over the entirety of Africa's third largest lake, while Tanzania says 50 percent is part of its territory. The row, which goes back half a century, could worsen if significant oil and gas discoveries are made.
Malawian President Joyce Banda said late on Tuesday she believed Tanzania had raised tension by moves such as alleged intimidation of Malawian fishermen on the lake, which also borders on Mozambique.
"I was of the view that the matter is being resolved through dialogue but now it looks bigger than I thought. While in New York, I wrote them (Tanzania) telling them that there is no point going on with the dialogue," Banda told a news conference in Lilongwe.
Tanzanian foreign ministry officials were not immediately available for comment on Banda's remarks.
The Malawian leader also cancelled a planned visit to Tanzania this month for talks on the dispute.
Malawi, an impoverished southern African country, a year ago awarded oil exploration licenses to UK-based Surestream Petroleum to search for oil in Lake Malawi, which is known as Lake Nyasa in Tanzania.
But in July, Tanzanian authorities asked Surestream Petroleum to postpone any planned drilling on the lake. The company has not yet started to drill.
Tanzania, east Africa's second-biggest economy, became a player in energy this year with several onshore and offshore gas finds, attracting multinational energy concerns to the area.
French oil major Total is close to signing a deal to explore for oil and gas in Tanzania's Lake Tanganyika. The government is also processing deals for deep sea exploration spots off Tanzania's Indian Ocean coast.
Lake Malawi contains more than 2,000 different fish species, attracting scuba divers, and environmentalists are concerned that oil exploration will disturb its freshwater ecosystem.