* U.S. says Mugabe must go
* U.S. says Mugabe "completely out of touch"
* South Africa says unity deal Zimbabwe’s best hope
By Spokes Mashiyane
PRETORIA, Dec 21 (Reuters) - Zimbabwean President Robert Mugabe has reneged on a power-sharing deal and the United States will no longer support a government that includes him, a top U.S. envoy said on Sunday.
U.S. Assistant Secretary of State Jendayi Frazer told reporters in Pretoria Mugabe was "completely out of touch" and was responsible for turning the once prosperous country into a "failed state" where food is scarce and the currency worthless.
Mugabe and opposition leader Morgan Tsvangirai agreed on Sept. 15 to form a unity government, a pact supported at the time by the United States. But that agreement has unravelled due to a fight over control of important ministries.
Since then, Zimbabwe has sunk deeper into crisis. Hyper-inflation means prices double every day, a cholera epidemic has killed more than 1,100 people and the opposition has accused the ruling party of abducting its supporters.
"We feel that Robert Mugabe has reneged on that deal," Frazer said, citing political violence, the spread of cholera, and moves by Mugabe to unilaterally take control of important ministries and posts.
"The power sharing agreement ... needs to be implemented with someone other than Robert Mugabe as president."
Western nations, Zimbabwe’s neighbours and investors had hoped a unity government with Tsvangirai as prime minister would wrest enough control from Mugabe to reverse policies they blame for Zimbabwe’s economic meltdown, and avert total collapse.
"Today we know better," Frazer said, adding she had been sent by Secretary of State Condoleezza Rice to explain the U.S. shift in policy to other southern African countries.
"OUT OF TOUCH"
While some southern African countries such as Botswana have criticised Mugabe, most African leaders, including neighbour South Africa, have stopped short of calling on him to quit.
Frazer said she had urged Zimbabwe’s neighbours to step up the pressure, saying they were protecting him by failing to take a tougher diplomatic line.
But South Africa reiterated on Sunday it had not changed its position and urged the parties to implement the power-sharing deal urgently.
"We believe in that agreement as the way for Zimbabwe to deal with its problems," said Thabo Masebe, a spokesman for South African President Kgalema Motlanthe.
Mozambique’s president also called for the quick formation of a coalition government.
Frazer said the United States had been poised to help rescue Zimbabwe’s collapsing economy as soon as the deal was implemented, including possible relief on $1.2 billion in debt to international institutions and the easing of sanctions. "That’s off the table now with Robert Mugabe remaining in government," she said.
Western countries including the United States blame Mugabe for Zimbabwe’s woes and have intensified calls for him to step down. Rice said this month his departure was well overdue.
Mugabe regularly rails against Western leaders, saying they are using cholera as an excuse to topple him and blaming economic sanctions for the meltdown.
He says Tsvangirai is a western puppet and has vowed he will never "surrender" to attempts to oust him. Tsvangirai says Mugabe is trying to relegate him to a junior partner in the unity government.
There was no immediate comment from Harare on Sunday.
Frazer said she expected "a lot of hot rhetoric" from Mugabe, saying he was "completely out of touch" with the fact 5 million of his people would need food aid by January.
"He has no idea," she said. "He’s getting plenty of groceries." (Additional reporting by MacDonald Dzirutwe in Harare and Charles Mangwiro in Maputo; Writing by Rebecca Harrison in Johannesburg; Editing by Elizabeth Piper)