The nine-member AU observer mission, led by Tanzania's William Shija, criticised the excessive use of public media by the ruling United Democratic Front and said controversy around the voters' roll exposed weaknesses within the country's electoral body.
"The excessive use of public media and other resources by the ruling party did not provide a level playing field for all opposition parties," the AU said in a statement, published in local papers on Wednesday.
The ruling party's candidate Bingu wa Mutharika has been inaugurated as the new president after parliamentary elections in the southern African country last week, but the main opposition bloc Tuesday filed a suit for re-run citing "massive irregularities".
Some 5.7 million voters were registered for last Thursday's elections in the impoverished country of 11 million people after the number of registered voters was controversially whittled down by nearly a million.
"The very fact that there were problems in reconciling the figures of eligible voters, that the roll had not been finalised early enough to allow proper verification, pointed to insufficient capacity of the electoral commission to adequately prepare for the elections," the AU said.
"Our overall assessment is that elections were conducted in a free and peaceful atmosphere, but that the team prays that all parties will accept the result and that there will be a smooth transfer of power and a spirit of reconciliation," it said.
The European Union has hit out at former president Bakili Muluzi for saying all foreign observers including the EU and the Commonwealth had declared the results "free and fair".
The EU stressed that in its preliminary statement last week on the elections, "in no place did we use either the word free or the word fair."