The state assembly had convened a special session to do away with so-called House Bill 2, which required transgender people to use restrooms corresponding to the gender on their birth certificates - not the one they identify as - in schools and government buildings.
Democrats and Republicans had earlier reached an agreement to repeal the law in exchange for Charlotte - North Carolina's most populous city - dropping new gay rights provisions that were the trigger for the "bathroom law."
But lawmakers clashed for hours Wednesday, bickering over details of the compromise.
Ultimately, the Senate rejected a bill to repeal the law, and the House adjourned without making a decision.
The lawmakers aren't scheduled to be in session again until next month.
"It is a shame that North Carolina's General Assembly is refusing to clean up the mess they made," James Esseks, director of the American Civil Liberties Union's LGBT and HIV Project, said in a statement.
"The support for the LGBT community from political leaders, faith leaders, businesses, and everyday people that has emerged this year will not fade. These attempts to expel transgender people from public life will not be tolerated," he said, adding that his group planned to challenge the law in court.
The law passed in March was widely condemned as discriminatory, and resulted in North Carolina suffering a string of business boycotts.
Performers such as Bruce Springsteen and major sports groups cancelled events, and there was blowback from corporate titans such as Apple and Starbucks.
From Sam Wallman's US Presidential election cartoon series. Source: Sam Wallman
Republican Governor Pat McCrory is believed to have lost his re-election bid in November in part due to the law - which his incoming Democratic successor pushed to do away with.
Governor-elect Roy Cooper had argued that scrapping the bathroom law would help win back business and restore North Carolina's tarnished reputation.
'Totalitarian America'
Amid the fray in North Carolina, President Barack Obama in May issued instructions for all public school districts in America to let transgender kids use the restroom of their gender identity.
American conservatives howled in protest, deriding the idea as ridiculous government overreach and political correctness run horribly amok.
"Bathroom Wars' Goal: Humiliate the American Normal Majority," headlined an opinion piece in April on the ultra-conservative Breitbart News site -- then run by the man who is now President-elect Donald Trump's chief strategist, Steve Bannon.
"Welcome to life in totalitarian America, where even going to the bathroom and identifying the sex of an adult have now become intensely political acts," it added.
Even outside hardline circles, these are puzzling times for many American conservatives.
The US Supreme Court ruled last year that a marriage between people of the same sex is just as legitimate as one between heterosexuals.
And an Olympic sports hero whose face used to grace Wheaties cereal boxes is now a woman named Caitlin Jenner.
The issue of transgender rights echoed through the US presidential campaign that led to Trump's election.
The North Carolina gender law and others like it are widely seen as a backlash against the Supreme Court gay marriage ruling, with transgender people caught in the crossfire of a war between conservatives wed to traditional family values and progressives seeking greater rights for the LGBT community.
The US Supreme Court entered the debate in October, announcing that it will consider the case of a 17-year-old in Virginia who was born a female but identifies as a male and filed suit to be able to use the boys' bathroom at his high school.
