His comments underscored deep anger in the war-torn country, one day after he said international forces should leave villages, potentially jeopardising NATO operations two years before combat troops are due to leave Afghanistan.
"The Afghan government didn't receive cooperation from the USA regarding the surrender of the US soldiers to the Afghan government. This (civilian casualties) has been going on for too long," Karzai told reporters.
"This is by all means the end of the rope here," added Karzai, who has long called for an end to US raids on Afghan homes and who came under pressure Friday from relatives to take corrective action.
"This behaviour can't be tolerated. We have not asked for money. We ask for justice rather than compensation," he added.
Afghan leaders demanded that the suspect face a public trial in Afghanistan over the killings -- mainly of women and children -- in the southern province of Kandahar as villagers slept before dawn on Sunday.
But the 38-year-old decorated soldier was instead flown to Kuwait this week and on Friday his lawyer said he was en route to a maximum security detention centre at Fort Leavenworth in Kansas, a first step towards being charged.
Karzai met 20 to 30 relatives of the victims at his palace on Friday, where representatives suggested more American soldiers were involved in the massacre in two villages, but provided no details to support their claim.
"How do they dare kill our children while they come to our country for the sake of service. We don't want money and we want justice and we want them to be tried in Afghanistan," said Haji Abdul Samad, an elder from Panjwayi district.
"We want the government to take practical steps to stop such actions. This is not the first time that such incidents have taken place. Thousands of times such incidents took place in our country," he added.
Haji Abdul Saboor, another elder from Panjwayi district, said it was an "absolute lie" that only one American soldier was responsible.
Series of incidents
Sunday's killings were the latest in a series of incidents involving American soldiers that have badly affected already fragile Afghan-US relations as the United States prepares to withdraw combat troops by the end of 2014.
A video released this year showed Americans urinating on Taliban corpses and in mid-February, copies of the Koran were burnt on a US military base, sparking riots that left at least 40 people dead.
Karzai's office said he told US Defense Secretary Leon Panetta on Thursday that international forces should leave villages and be "relocated in their bases" and that Afghanistan is ready to take responsibility for security.
Karzai gave no timeline other than saying that NATO should handover to Afghan forces in 2013 and US officials went into damage-limitation mode, saying Karzai's statement was "consistent" with an agreed timetable.
Panetta and NATO allies said last month that they hoped Afghan forces can take the lead in 2013, leaving foreign troops in a backup role before the bulk of combat forces withdraw in 2014.
In Afghanistan, reactions were split between those who believe local security forces would do a better job and those swayed by a weight of evidence that they are not yet capable of taking over.
Shinkai Karokhel, an MP from Kabul said she was appalled by what she called an "emotional" outburst from Karzai fuelled by anger over Sunday's killings.
"Afghan security forces are not capable of maintaining security in the villages and districts of the country where the Taliban hold strong sway," she told AFP.
In February, Lieutenant General Curtis Scaparrotti, deputy commander of US forces, said that only one percent of Afghan units could conduct operations independently but that 42 percent ranked as "effective" with foreign help.
Karzai has a reputation for often making public comments that have seemingly strayed from agreed policies, and the reaction of US officials suggested Washington hoped Karzai's statement was aimed at a domestic audience.
Yet Karzai has also been consistent in his demand for foreign troops to take more of a backseat. He vigorously opposes so-called night raids, which target Taliban in their homes on the grounds that they cause civilian casualties.