The producer had previously suggested that the Britpop band, whose last album was 2003's Think Tank, had been together in the studio.
"The new stuff sounded amazing," Orbit told NME. "Then it all stopped suddenly.
"It was all over with Damon, and the rest of the band were like, 'Is this it?'"
Blur reformed in 2009 for a series of live gigs.
The band received the 2012 Brit Award for 'Outstanding Contribution to Music' and Albarn recently said that the group were not finished.
Guitarist Graham Coxon, who quit Blur in 2002 two years before they first split but rejoined the band for their comeback, said earlier this year that there will "definitely" be a new Blur album.
Coxon this year released the solo album A+E while Albarn released his solo debut Dr Dee.
Blur headline the London 2012 Olympics Closing Ceremony Celebration Concert in Hyde Park on Sunday, August 12 with support from The Specials and New Order, following a mini-tour of warm-up dates.
Watch the Blur 'For Tomorrow' music video below: