Cyprus' ruling coalition partner party quit the government Wednesday over disagreements about ongoing talks to reunify the ethnically divided island, officials said.
The move by the DIKO party doesn't mean the government is dissolved, but it does leave embattled President Dimitris Christofias with a minority in parliament and drives him deeper into isolation.
A political and economic crisis was triggered by a deadly blast last month of seized Iranian munitions at a naval base that also wrecked the island's main power station, the supplier of more than half the island's electricity.
It may also make it more difficult for Christofias' government to pass key spending cuts and economic reforms in the House of Representatives to cope with the blast's aftermath. Christofias is now backed only by the communist-rooted AKEL party he has led for 20 years. AKEL has 19 seats in the 56-seat parliament and DIKO nine.
Government spokesman Stefanos Stefanou said Christofias regrets DIKO's withdrawal and will go ahead with a Cabinet reshuffle in the next few days amid growing speculation that the European Union member country may be forced to seek a bailout.
"The aim is for the new government is to confront the challenges our country faces with dynamism and determination," said Stefanou.
The walkout by the center-right DIKO adds to the woes of Christofias, who has been under a constant barrage of criticism over the detonation of 98 munitions-filled containers.
The containers were seized in 2009 from a Cypriot-flagged vessel that the U.N. said contravened an arms embargo against Iran.
Many Cypriots saw the explosion as a result of official negligence and have called on Christofias to resign, which he has ruled out.
The blast is also expected to take a heavy toll on the island's euro17.4 billion ($24.66 billion) economy, with EU estimates putting the overall cost at euro2 billion ($2.83 billion). Fixing the power plant alone will cost euro700 million ($992 million).
The explosion's added strain on public finances prompted Central Bank Governor Athanasios Orphanides, a member of the European Central Bank's governing council, to warn that Cyprus may be forced to seek a bailout if planned spending cuts _ especially on the state payroll that takes up more than a quarter of all government spending _ aren't broadened and speeded up.
This week, the island's biggest lender, the Bank of Cyprus, and several business leaders also warned that deep spending cuts are needed fast, after finance ministry figures showed that the deficit for the first half of this year shot up to 3.47 percent from 1.89 percent the corresponding period last year.
The government has already been mulling a raft of tax and cost-cutting measures following several credit rating downgrades because of the bank system's exposure to crisis-afflicted Greece.
But opposition leaders _ even DIKO members _ accused the government of balking in the face of strong labor union pressure.
DIKO had been pressuring Christofias to make deeper spending cuts, but it was the long running reunification talks that ultimately led to the coalition unraveling.
Cyprus was split into a Greek Cypriot south and a Turkish Cypriot north in 1974 when Turkey invaded after a coup by supporters of union with Greece. The island joined the EU in 2004, but only the internationally recognized south enjoys membership benefits.
The talks, into their third year, have made little tangible headway and DIKO has been a vocal critic of Christofias on his handling of the talks, urging him to withdraw proposals such as a rotating presidency in an envisioned federation.
"Despite our continued efforts and repeated appeals, unfortunately, the wished-for understanding between political forces which is so needed in these crucial moments for our country couldn't be achieved," said DIKO leader Marios Garoyian after meeting with Christofias.
Stefanou said Christofias would not withdraw any proposals during an intensified period of negotiations.
U.N. Secretary-General Ban Ki-moon has told the two sides to reach agreement by October on all core issues, including what to do with private property lost during the war.