Vehicles on fire during a clash between armed gunmen and Federal police and military soldiers, in the streets of the city of Culiacan, Sinaloa state, Mexico.
"The capture of one criminal can not be worth more than the lives of people", Lopez Obrador said, adding that the cartel became "very violent" and put many lives at risk.
Lopez Obrador said he remains committed to tackling violence through peaceful means and dismissed such questions as "the point of view of our adversaries and the opposition media".
Local authorities are warning people to stay off the streets as the shootouts continue to ravage the city.
Teresa Mercado, who had just returned to her native Culiacan on Thursday, said: "This is worse than what I had lived through years ago".
Vehicles also apparently were set on fire, and barricades were set up along roads. Men carrying high-calibre weapons blocked major intersections.
Chaos continued into the night after a large group of inmates also escaped from the city prison.
Sinaloa public safety director Cristobal Castaneda told Milenio television that there were people wounded but did not provide a casualty figure. Two guards were taken captive and later freed.
Cartel gunmen were reportedly driving around the city in trucks, with one armed with a mounted machine gun, while locals hid in supermarket aisles and took cover in the streets.
Members of the National Guard and army were patrolling in Culiacan when they were fired on from a house.
It was not immediately clear if members of the patrol were harmed in the standoff.
"This decision was made to protect the people".
"The capture of one criminal can not be worth more than the lives of people". "We don't want dead people, we don't want war", said Lopez Obrador, a veteran leftist who has advocated a less confrontational approach to tackling the gangs. "We do not want war".
"With the goal of safeguarding the well-being and tranquility of Culiacan society, officials in the security cabinet chose to suspend the actions", Durazo said.
Castaneda said gunmen blocked streets with burning vehicles to make it hard for security forces to manoeuvr.
Sandoval said that if the security cabinet had known about the operation, it would have gone about it differently and deployed more troops and even sent air support. Federal Security Secretary Alfonso Durazo said he was never under formal detention.
Jose Luis Gonzalez Meza, a lawyer for "El Chapo's" family, told The Associated Press that Guzman's family has said "Ovidio is alive and free" but that he had no more details about what had happened.
"In fact, Chapo's sons are now risen through the ranks of the Sinaloa cartel and taken over Chapo's end of the organization", he said.