Pakistan's Muttahida Qaumi Movement (MQM), the second largest party in the ruling coalition, will leave the governing alliance and sit in opposition at the federal level, the party said on Sunday.
The decision by the MQM means the government may now collapse because it will lose its majority in the National Assembly.
"It has been decided. We will sit on the opposition benches in the National Assembly and the Senate," MQM spokesman Wasay Jalil said.
The MQM, which is the dominant political force in the country's financial capital Karachi, last week withdrew its two ministers from the federal cabinet because of what it said was the government's failure to improve security.
Pakistan Prime Minister Yusuf Raza Gilani said his government would not collapse despite the MQM move.
However, analysts said forming a new coalition would likely be a protracted delicate process and it was more likely that early elections would be called.