"Nakuru town has been shut down...My staff have carried three dead bodies and hundreds are injured in hospital," said Abbas Gullet, Head of Kenya Red Cross.
Arsonists razed scores of houses overnight and used large stones and overturned carts to form roadblocks on some streets, witnesses said.
The town centre was locked down and residents fled to nearby slums after paramilitary police were deployed on the outskirts of Nakuru.
Aerial pictures of surrounding villages showed smoke rising from a number of torched homesteads.
Annan orchestrated a symbolic first meeting between Mwai Kibaki, the Kenyan president, and opposition leader Raila Odinga on Thursday, but both sides later accused each other of trying to undermine the mediation effort.
The disputed election on December 27 set off ethnic violence mainly in Nairobi slums and the country's west.
About 700 people have been killed and 260,000 displaced since Kibaki was re-elected in polls which observers said were flawed, and Odinga’s Orange Democratic Movement (ODM) say were rigged.
Hopes for a solution had grown on Thursday after Annan brought Odinga and Kibaki together for their first discussions on how to end the standoff.
But their smiles and handshake were quickly followed by new accusations, with the opposition angered by Kibaki's reference to himself as the country's "duly-elected" leader.
"I would ask him to desist from making those kind of embarrassing remarks which will definitely undermine the process of mediation," Odinga told news agencies on Friday.
He also urged the African Union to avoid endorsing Kibaki's re-election at a planned summit in Ethiopia.
Odinga agreed to meet Kibaki again but ruled out taking a new post of prime minister in Kibaki's government, a solution some diplomats have touted.
He said the only three acceptable options would be Kibaki's resignation, a vote re-run, or power-sharing followed by a new election.