Iran, North Korea and Syria have blocked what would have been the first treaty to regulate the $70 billion global trade in conventional arms, BBC reported.
The draft would require states to ensure that conventional weapons are not transferred across borders if they are to be used in human rights abuses. Supporters were hoping to secure the backing of all 193 UN member states.
They are now expected to take the draft to the UN General Assembly, where it will likely pass by a large majority.
"This is not a failure, today is success deferred and deferred by not very long," said the chief UK negotiator, Jo Adamson, who called the draft a "good, strong treaty".
Diplomats have worked for nearly a decade to agree on a set of principles to stop the unchecked flow of arms, and the BBC's Nada Tawfik reports from New York that on Thursday many believed the treaty was close to achieving consensus.
The treaty would prohibit states from exporting conventional weapons in violation of arms embargoes, or weapons that would be used for acts of genocide, crimes against humanity, war crimes or terrorism.
It would also require states to prevent conventional weapons reaching the black market.
Iran's representative, Mohammad Khazaee, said the treaty was "hugely susceptible to politicisation and discrimination".
He said it failed to ban transfers of arms to those who "commit acts of aggression", apparently a reference to rebel groups.
Syrian Ambassador Bashar Jaafari objected to the draft treaty's failure to include an embargo on transferring arms to "terrorist armed groups and to non-state actors".
"Unfortunately our national concerns were not taken into consideration," he said.
Anna Macdonald, head of arms control at Oxfam, said the treaty was too narrow.
"We need a treaty that covers all conventional weapons, not just some of them,'' she said.
"We need a treaty that will make a difference to the lives of the people living in Congo, Mali, Syria and elsewhere who suffer each day from the impacts of armed violence."
Last year, efforts to reach agreement on the treaty broke down after the US, followed by Russia and China, said more time was needed to consider the issues.