Sauber are now using a 2016 specification Ferrari power unit but Vasseur told reporters at the Hungarian Grand Prix that the team needed to have the latest version next season.
The Japanese manufacturer has endured a miserable return to the sport with McLaren, however, prompting Sauber to stay put with the Scuderia.
"We reached a point that at one stage it was better for everybody to stop the discussions and we did it in a very fair way with Honda and I would like to thank them for the discussion we had over the last ten days". Honda said Sauber, who are ninth out of 10 teams, had made the initial approach to them but the project had been called off due to "differences in the future direction between Honda and Sauber".
Less than 24 hours after Sauber confirmed that it will not be going through with an original idea to switch to Honda engines, the Hinwil-based team said it was continuing with its current engine partner.
Following Kaltenborn's departure from Sauber ahead of the Azerbaijan Grand Prix in June, speculation intensified that the deal could be called off, with Honda engine boss Yusuke Hasegawa wanting an answer from the team "as soon as possible".
Honda is, and there is no way to put a positive spin on it, now the worst performing power unit supplier on the grid.
Commenting on the cancellation, Honda Motor Sports Division, General Manager said, "We had built a good relationship with Sauber, and had been looking forward to entering the 2018 F1 season together".
With the partnership now cancelled, this could mean the end for Honda in Formula 1.
Sauber could now be moving to engines from Mercedes or its long term associate Ferrari.
Honda added in a statement that its "passion for motorsports and strong commitment to Formula One remains unchanged".
Sauber will now continue to use Ferrari engines next season after ending plans to switch to Honda power in 2018. Both suppliers have a connection to the team at present, with Mercedes junior Pascal Wehrlein now plying his trade with the Hinwil-based squad, while Vasseur's prior role to arriving at Sauber was with the Renault team.