WASHINGTON — The failure of a special deficit-reduction supercommittee sets up a year-end battle between President Barack Obama and a dysfunctional Congress over renewing a payroll tax cut and jobless benefits for millions.

At the same time, the debt panel’s failure means deep, automatic cuts to the Pentagon budget, beginning in 2013, that defense hawks already are dedicated to unwinding.

The panel’s failure to reach agreement on how to cut deficits by $1.2 trillion or more over 10 years was not unexpected but grew out of intractable divisions over spending and taxes that promise to hound lawmakers through 2012 elections that could sort it all out.

Stock prices plummeted at home and across debt-scarred Europe on Monday as the panel ended its brief, secretive existence without an agreement. Republicans and Democrats alike pointed fingers, maneuvering for political advantage in advance of elections less than a year away.

Lawmakers of both parties agreed action in Congress was still required, somehow and soon.

“Despite our inability to bridge the committee’s significant differences, we end this process united in our belief that the nation’s fiscal crisis must be addressed and that we cannot leave it for the next generation to solve,” the panel’s two co-chairs, Sen. Patty Murray, D-Wash., and Rep. Jeb Hensarling, R-Texas, said in a somber statement.

President Obama, who was criticized by Republicans for keeping the committee at arm’s length, said refusal by the GOP to raise taxes on the wealthy was the main stumbling block to a deal.

Obama pledged to veto any attempt by lawmakers to repeal a requirement for $1 trillion in automatic spending cuts that are to be triggered by the supercommittee’s failure to reach a compromise, unless Congress approves an alternative approach.

“I will veto any effort to get rid of those automatic spending cuts to domestic and military spending. There will be no easy off-ramps on this one,” Obama said.

The panel’s failure left lawmakers confronting a large and controversial agenda for December, including Obama’s call to extend an expiring payroll tax cut enacted last year to prop up the economy, as well as unemployment benefits averaging about $300 a week for the long-term jobless.

Neither item is an easy lift, especially given the hard feelings — and presidential politics — consuming Washington.