The second-largest member of Pakistan's ruling coalition reversed its decision to join the opposition on Friday, averting the potential collapse of the government.
The move by the Muttahida Qaumi Movement (MQM), announced after the government backed down on economic measures, eased the political crisis facing Pakistan.
The MQM's decision came a day after Prime Minister Minister Yousuf Raza Gilani said the government would reverse fuel price hikes that partly prompted the party's defection.
He also said on Friday during a visit to MQM headquarters in the southern port city of Karachi that the government would postpone a new tax system meant to raise more revenue.
But the party's demands that the government reduce fuel prices and hold off on tax reform will deepen the country's deficit, a development that could lead the International Monetary Fund to withhold billions of dollars in loans desperately needed to stabilise the economy.
IMF, US flay Pak
IMF spokeswoman Caroline Atkinson criticised the decision saying Pakistan needed to reduce the amount of money it is spending on energy subsidies.
US Secretary of State Hillary Clinton also criticised the decision, saying "we think it is a mistake to reverse the progress that was being made to provide a stronger economic base for Pakistan."