Crunch talks between Hong Kong democracy protesters and the government were called off Thursday just hours after demonstrators vowed to ratchet up their occupation of key parts of the city if their demands were not met.

The collapse of the talks, which were due to take place Friday, plunges the vital financial hub into fresh crisis with protesters refusing to retreat from their barricades and an equally intransigent government rejecting further negotiations.

Parts of the southern Chinese city have been paralysed for more than a week by demonstrations calling for Beijing to grant the former British colony full democracy and for the city's Chief Executive Leung Chun-ying to resign.

Under plans unveiled by China in August, Hong Kongers will be able to vote for Leung's successor in 2017, but only two to three vetted candidates will be allowed to stand.

Although protester numbers have dwindled in recent days, small groups still control multiple intersections across the city in what has become the most concerted challenge to Beijing's rule since Hong Kong's handover in 1997.

Hopes of a breakthrough were dashed Thursday evening as Leung's deputy, Chief Secretary Carrie Lam, announced the government was pulling out of talks with the Hong Kong Federation of Students (HKFS), one of the leading protest groups.

"The basis for constructive dialogue has been undermined. It's impossible to have a constructive meeting tomorrow," she said.

Two and a half hours earlier a coalition of pro-democracy leaders had gathered at the main protest site and vowed to increase their civil disobedience campaign if the talks broke down.

"Hong Kong people will not retreat. And there's no reason for anyone to ask us to retreat. Therefore the Occupy movement must be ongoing," HKFS president Alex Chow told the crowd.

"Also the students will go into different Occupy areas," to discuss potential future plans for further civil disobedience, he added.

'Era of disobedience'

Pro-democracy lawmakers also threw their weight behind the protests Thursday saying they would use their powers to disrupt the workings of the Hong Kong government inside the city's parliament by gridlocking the committees they currently control.

"Hong Kong has entered an era of disobedience and non-cooperation," pro-democracy leader Alan Leong told crowds.

The threat was issued as the city's embattled leader Leung came under pressure to explain why he kept large payments from an Australian company secret with pro-democracy lawmakers saying they would try to impeach him.

Fairfax Media reported Wednesday that Leung received two payments totalling HK$50 million ($6.5 million) from Australian engineering firm UGL during a deal struck in December 2011 -- months before the chief executive took office, but a week after he announced his candidacy.

At the time UGL was purchasing the insolvent property services firm DTZ, where Leung was a director and chairman of its regional operations.

It agreed to pay Leung over the next two years not to compete with them, and the contract signed by him showed he agreed to act as an "adviser from time to time".

Opposition lawmakers expressed their dismay that Leung did not declare the payments to the Hong Kong public once he became leader in July 2012.

"It boils down to a huge integrity problem," pro-democracy lawmaker Claudia Mo told AFP. "Can you imagine (Barack) Obama being a consultant of some company while being a political leader?"

Leung's office has said he was under no legal obligation to declare the earnings and that he had not worked for UGL since becoming chief executive.

Leong said his group of 23 lawmakers in the 70-seat body were planning to file an impeachment order against the chief executive following the emergence of the deal.

"We are gathering the evidence and working on the draft. We will move the motion in the Legco when the draft is ready," Leong said.