Haider and leaders of his far-right Freedom Party would remain in government but in a new organisation - the Alliance for the Future of Austria - free of critics blamed for a series of defeats.
The critics argued that the Freedom Party should return to opposition in order to promote its views.
"We have agreed that I will be the leader of this new movement," Haider told a news conference on Monday attended by Freedom Party leaders due to join the new organisation.
He said the new party would take Freedom's place as partner in the centre-right coalition with Chancellor Wolfgang Schuessel's larger conservative Peoples' Party, rather than pull out and prompt early elections.
Too many internal critics were undermining the work of the party's ministers in government, Haider said.
"You can't say one day you want to be in the opposition and then the next day that you want to govern but maybe only a little bit."
In the 2002 polls, the Freedom
Party took just 10% of the vote
Ursula Haubner, Haider's sister and outgoing chairwoman of the Freedom Party, said: "This is the result of the destructive forces in the Freedom Party."
Haubner said she was stepping down as the party's head but would remain social affairs minister.
"The government majority in parliament is secure," Herbert Scheibner, the head of Freedom's parliamentary faction, said.
Scheibner said he was confident the Freedom Party's MPs would switch their allegiance to the new organisation.
Haider built up the Freedom Party to a peak of 27% in Austrian elections in 1999, the largest showing by a far-right party in Europe since the second world war.
"We do not want
to use up all of our energy on our internal critics, we want to
use it for Austria"
Freedom Party ex-chairman
But support has fallen steadily, and it took just 10% in parliamentary elections in 2002.
Haider stepped down as party chairman in 2000 but has remained a dominant figure from the sidelines.
The switch to a new party comes after a purge last week of a prominent internal critic by Haider's allies that barely succeeded, showing stronger than expected support among many functionaries for a pro-opposition stance.
"We do not want to use up all of our energy on our internal critics. We want to use it for Austria," Haider said.