The league extended the negotiating period by one week but described both sides as "far apart" in talks with the MLS Players Association after exchanging proposals on Friday (AEDT) with no apparent progress.
"If we are unable to finalise a new CBA by 11:59 p.m. ET on 4 February, the MLS Labor Committee has voted unanimously to authorise the league to terminate the CBA and institute a lockout," an MLS statement read.
In its latest statement, the MLSPA warned a shutdown would be a disaster for the league.
"A work stoppage at this time and in this environment would be catastrophic for the standing of MLS, both domestically and internationally," a statement from the MLSPA read. "It is our sincere hope that it can be avoided. Players are ready to play."
The league said it would continue to pay health insurance premiums for players and families if a lockout is imposed, given the ongoing pandemic.
MLS stretched its timetable for talks on revisions in the collective bargaining agreement ahead of expected losses because of the impact of COVID-19 allowing limited attendance or no ticket sales for matches this year.
"Although we remain far apart, we will extend the 30-day negotiating period by one week to provide every opportunity to finalise an agreement," the league statement read.
"As part of the extension, MLS and the MLSPA are committed to a regular schedule of meetings over the coming days.
"Given the impact of COVID-19 on how clubs will need to operate during pre-season, we must finalise an agreement in the coming days in order to provide teams and players adequate time to prepare for the opening of training camps."
The MLS proposal would pay players 100 per cent of compensation in 2021 in exchange for extending the current bargaining agreement for two years, through the 2027 campaign.
The extension would "allow the league and clubs to recover a portion of the losses incurred in 2021 as a result of the pandemic while protecting the long-term health of the league by providing stability which promotes ongoing investment", according to the league.
MLS would not alter terms of the bargaining agreement or change player free agency rules. "We are committed to getting a deal done," a statement read.
The league is set to stage its 26th season this year with 27 clubs in US and Canadian markets, including expansion club Austin FC and other new clubs planned in Charlotte, St. Louis and Sacramento.
The MLSPA noted the sides reached a new five-year deal last February only for COVID-19 to jeopardise the 2020 season, causing players to agree to salary cuts and other economic concessions, including extending the bargaining deal to include 2025.
"These concessions, felt directly by players in 2020 but with a financial impact on all players that stretches throughout each remaining year of the CBA, totaled over $US150 million dollars [$194.4 million]," an MLSPA statement read.
An MLSPA proposal to the league on Friday (AEDT) included extending the CBA through 2026, saying that would result in more than $US200 million ($259.2 million) in economic concessions and cut the impact of revenue sharing players had won in the original deal.
The offer would also reduce the age for free agency by one year and cut other restrictions on free agent earnings.
The union noted the risks to players by returning to the field and club and league options to trim spending in other areas if losses grow larger.