After weeks of bickering over the budget and plans to send more troops to bolster Nato forces in Afghanistan, Jaroslaw Kaczynski, the conservative prime minister, said he would fire Andrzej Lepper, his deputy and the leader of the Self-Defence party.
He told a news conference that he would try to cobble together another majority in parliament, but said snap elections were also possible if that task proved unachievable.
"We are doing all we can to put together a majority but if it fails, early elections will be the only solution."
Party officials said polls could be held on November 26.
Law and Justice, headed by Kaczynski and his identical twin brother Lech, who is the president, won parliamentary elections last year but fell well short of an overall majority.
Promising a new beginning after 16 years of tough reforms needed to join the EU, the brothers dropped an earlier promise to rule with the pro-business Civic Platform and stunned many Poles by choosing Lepper as their coalition partner.
They argued that Lepper, who had opposed EU membership and foreign investment and is accused by critics of populism, had matured and could be trusted with power.
His entry into the government four months ago, together with a smaller nationalist party, caused concern among Poland's EU partners.
Tensions quickly rocked the coalition as Lepper piled on spending demands that threatened the 2007 budget ceiling, while the conservatives took many decisions, such as increasing the Polish troop contingent in Afghanistan, without consulting him.
Jaroslaw Kaczynski on Thursday said Lepper had not changed.
"Mr Andrzej Lepper received a chance to participate in a good government.
"He failed to use this chance and after a short while he returned to his old practices, to troublemaking."
The opposition, however, pinned the blame for the crisis on the Kaczynskis, Catholic traditionalists who are suspicious of the West and free-market economic reforms.
Donald Tusk, leader of the Civic Platform, said the Kaczynskis had alienated Poland's neighbours and created unprecedented chaos at home after cabinet reshuffles, conflicts with foreign investors and botched reform plans.
He said: "This was a wasted year, a year of argument and conflict.
"The only way out is an early election."
But Law and Justice, fearing a voter backlash, said it would try to court 14 deputies from other parties to try to regain a majority in the 460-member lower house.