The setback hammered shares on the Athens stock exchange and drew urgent appeals from the country's creditors for stability and swift reform implementation. Concerns about Greece also sent Europe's stock markets falling, with Germany's DAX dropping 1.24 percent.
Democratic Left pulled out of conservative Prime Minister Antonis Samaras' year-old coalition, withdrawing two cabinet ministers and promising only qualified support in parliament a move that leaves the government with a slim majority.
The news raised further fears over Greece's bailout program. The country has been pledged 240 billion euros in bailout loans but only on the condition that it introduced strict spending cuts and reforms. So far there are already delays on a pledged overhaul of the state and the inefficient tax system, liberalizing markets and further cutting spending. Further political chaos could hamper the promised austerity measures.
The European Union's top economics official, Olli Rehn, urged Greek leaders Friday to concentrate on "policy rather than politics."
"It would be very important to stabilize the political situation in Greece now," Rehn said. "Immediately. And really concentrate all energy on implementation of the program to meet the milestones."
Samaras' coalition allies failed to resolve the dispute over ERT whose defiant staff is continuing unauthorized broadcasts following three meetings this week and a high court ruling that the decision to close it unlawful. The shutdown shocked Greeks, prompting protests outside the ERT headquarters in Athens, and was criticized abroad as a blow to press freedoms and democracy.
The conservative-led administration, formed to stave off bankruptcy after a previous coalition folded last year, has been left with two members after the rift with Democratic Left late Thursday.
Democratic Left officials said the ministers of justice and civil service reform were resigning from the 17-member cabinet of ministers within the day. Two of the party's deputy ministers were also preparing to leave, the officials said.
Without the 14 Democratic Left lawmakers, Samaras' conservatives and the smaller Socialist Pasok who were bitter enemies for the past four decades until forced to cooperate have 153 seats in the 300-member parliament.
A government official said a cabinet reshuffle is expected next week, while government spokesman Simos Kedikoglou ruled out Samaras' seeking a confidence vote in parliament.
"There is no need," he told private Alpha radio. "It's clear that the government has the parliamentary majority and it has plenty of work ahead."
The Democratic Left is now in political no-man's land. While officials say they will not seek elections or demand a confidence vote in parliament, it is unclear to what extent the party will back Samaras' government on crucial legislation.
A party statement said it would continue to pursue a pro-reform and pro-European agenda implying that it would extend limited support to the government.
Democratic Left official Gerassimos Georgatos criticized his party's decision to withdraw from the coalition.
"We are in an in-between situation," he told the AP. "We are withdrawing from the government without openly declaring that we join the opposition ... saying we will make constructive proposals. I'm not quite sure what that means."
Gizem Kara, senior eurozone economist at BNP Paribas in London, said it was too early to draw conclusions.
"But that said, of course this news is putting the stability of the government into jeopardy," she told the AP. "There is a well-known financing gap in the (bailout) program that people are starting to pay attention to. So this adverse political news is not a welcome development and it is posing risks in the period ahead."
The turmoil sent Greece's borrowing costs up Friday, while shares on the Athens Stock Exchange closed 6.11 percent lower. The interest yield on the country's benchmark 10-year bond an indicator of investor confidence in a country reached 11.29 percent Friday. Greece has been priced out of the bond market for three years.
Debt inspectors have suspended a review of Greece's public finances amid the political crisis, while the IMF warned Thursday that loan payouts could be affected if that review does not restart soon.
Samaras' ordered ERT's closure on June 11, shutting off its signal and firing nearly 2,700 employees as the country embarks on a second stage of painful cuts likely to focus on reducing the size of the public sector. He later said about 2,000 people will be kept on for three months until ERT's replacement is set up.
Greece has pledged to sack 15,000 public sector workers by 2015.
Kedikoglou, the government spokesman, said if protesting staff occupying ERT's buildings leave, the new broadcaster can be transmitting in a couple of days. Authorities have urged employees to vacate the facilities, but it is unclear what will happen if they refuse.
AP Writer Juergen Baetz in Luxembourg contributed.