The US government has begun a partial shutdown of many government services after the Republican-led House of Representatives refused to approve a budget for next year.
The midnight deadline for an agreement passed despite an 11th hour appeal by President Barack Obama.
With less than one hour to go before midnight, the Republican-led House called for a bipartisan committee with the Senate to try to thrash out a deal, but Democrats said it was too late to avoid a shutdown.
The White House's budget office began notifying federal agencies to begin an "orderly shutdown" as midnight approached.
More than 700,000 federal government workers face unpaid leave, with no guarantee of back pay once the deadlock is over.
The BBC reports that the divide in US politics has grown so bitter that government itself cannot function.
The partial shutdown is the first in the US in 17 years.
One of the key points of contention in the stalemate has been the healthcare law, known as Obamacare.
On Monday afternoon, the Democratic-led Senate voted 54-46 against a bill from House Republicans that would have funded the government only if Obamacare was delayed for a year.
Republicans in the House of Representatives demand that the law be repealed or stripped of funding as a condition for continuing to fund the government.
The US stock market dropped amid fears of political deadlock, although analysts say serious damage to the economy is unlikely unless the shutdown lasts for more than a few days.
Meanwhile, a deadline of 17 October for extending the federal government's borrowing limit looms even larger.
Earlier this month, Treasury Secretary Jack Lew said that unless the United States is allowed to extend its borrowing limit, the federal government would be left with about $US30 billion to meet its commitments.
Washington faced a similar impasse over the debt ceiling in 2011, but a compromise was reached.
Business as usual for US embassy in NZ
The United States embassy in New Zealand says despite not having a current fiscal year budget from the US government, it will continue operations and visa services as normal.
A spokesperson from the US embassy says it and the consulate general in Auckland will continue operations as normal and any changes will be posted on its website.