Union president Derek Fisher and fellow Lakers star Kobe Bryant joined player representatives from every NBA team. During a news conference, they announced plans to disband the union.
"We're prepared to file this antitrust action against the NBA," union executive director Billy Hunter said. "That's the best situation where players can get their due process."
Hunter said players were not prepared to accept the NBA Commissioner David Stern's ultimatum, saying they thought it was "extremely unfair."
"This is the best decision for the players," union president Derek Fisher said. "We all feel it's important to all our players, not just the ones in this room, but our entire group- that we not only try to get a deal done for today but for the body of NBA players that will come into this league over the next decade and beyond."
Stern called the players' move a "big charade."
"To do it now, the union is ratcheting up I guess to see if they can scare the NBA owners or something. That's not happening," Stern said in an interview with ESPN.
Stern had urged the players to take the latest deal, calling it the owners' best offer. He said that if the union files a suit, there will be "years of litigation."
In its latest offer, the league had proposed a 72-game season beginning Dec. 15.
Owners wanted to keep more of the league's nearly $4 billion in basketball revenues to themselves after guaranteeing 57 percent to the players under the old deal. And they sought a system where even the smallest-market clubs could compete, believing the current system would always favor the teams who could spend the most.
ABC News and The Associated Press contributed to this story.