The proposals faced opposition from many Tory MPs and speculation had been mounting that the plans would be axed.
Mr Clegg said opposition from Tory backbenchers and Labour meant the proposals faced a "slow death".
He said a key part of the coalition's contract had been "broken" and his party would oppose proposed changes to boundary changes in the Commons.
Lords reform has been a key goal for the Lib Dems, and its failure is likely to raise coalition tensions.
Last week, Lib Dem sources told the BBC the Lords reforms were a "red line", adding "there will be consequences" if they are shelved.
Liberal Democrats within the coalition government had pushed for reforms which would have seen 80% of peers elected and the total number of members halved to 450.
But 91 Conservative MPs rebelled against the government in a vote in July - the largest such act of defiance since the coalition was formed in 2010.
The prime minister told Tory MPs last month he would make "one more try" to push Lords reform through in September when the Commons returned from its summer recess.
Conservative MP John Whittingdale told the BBC Radio 4's The World at One that Mr Cameron had taken soundings on the issue and found there was "overwhelming opposition" to an elected House of Lords among his MPs.
He urged the coalition to turn its focus onto the economy, which he said was a priority for the public and where there was agreement between the two parties.
Lib Dem MP Martin Horwood said the Conservatives had failed to deliver on a key part of the coalition agreement and - in a reference to the row about security ahead of the Olympics - said his party's coalition partners "had become the G4S of British politics".
But Lib Dem peer Lord Carlile said the government's proposals had been "ill-thought out" and the opposition of large number of Conservative MPs had to be respected.
Labour said the Conservatives were "tooth and nail opposed to reforming and modernising the second chamber".