WRU chairman Gareth Davies says "the wheels came off" during a "tough week" for the domestic game in Wales.
Rival regions Ospreys and Scarlets were expected to merge, with a new team created in North Wales.
But the proposed merger is now "off the table."
"It's at the moment probably back to where we were in terms of the four regional entities unless something drastic happens over the next few weeks," Davies said.
Uncertainty remains for the Welsh domestic game with plans for change from the 2020-21 season.
Discussions between the Welsh Rugby Union and regions, dubbed Project Reset, also included previous proposals such as merging Ospreys and Cardiff Blues, but those plans fell through.
Ospreys chairman Mike James announced his resignation on Tuesday, with the region calling for a complete rethink of the process.
"Politics reign supreme in Welsh rugby, it was always thus. It's been a tough week for everybody," Davies told BBC Radio 4's Today programme.
"The new Professional Rugby Board (PRB) has been working quite hard and quite positively over the past 12 or 15 months to try and look at the structure and decide on a way forward.
"Things seemed to be moving in the right direction, with the four region sort of in agreement up until this week in terms of direction of travel.
"This week the wheels came off, as it were."
Meanwhile former Wales fly-half Davies says rugby on a world stage is entering a critical stage in its history.
World Rugby wants to introduce a 12-team league from 2022 in an attempt to revamp the international calendar, which would require promotion and relegation from the Six Nations and which has so far been strongly opposed.
"I think currently it's the most dynamic and most challenging time for rugby since 1995 when the game went professional," Davies added.
"There are so many moving parts now in terms of the World Rugby proposals, the Six Nations looking at its future structures as well.
"There is the arrival of private equity into the game, which we have seen in the English Premiership and is now being considered elsewhere.
"So it really is a dynamic time for the sport. I don't think anybody can predict the outcome."