Geir Haarde, Iceland's prime minister, has announced that his coalition government has fallen apart under the pressures of the country's financial crisis and that he would hand in his resignation to the president.
"I really regret that we could not continue with this coalition. I believe that that would have been the best result," Haarde said on Monday.
Haarde's government, a coalition between his Independence party and the Social Democratic Alliance, has been under pressure since the global financial crisis hit Iceland in October.
On Friday, the prime minister had called early national elections for May 9, revealing that he would not seek a new term because of a malignant throat tumour.
In negotiations with the coalition over the weekend, the Social Democrats had demanded the post of prime minister.
Haarde said: "We couldn't accept the Social Democratic demand that they would
lead the government."
Ingibjorg Gisladottir, Iceland's foreign minister and leader of the Social Democrats, was a potential replacement for Haarde.
Gisladottir said a more powerful leadership was needed.
"The government's actions in the last weeks and months were not swift enough," she said.
The Social Democrats said they are considering a possible coalition with the Left Greens.
On Sunday, Bjorgvin Sigurdsson, Iceland's minister of commerce, resigned over his part in causing the economic crisis.
Sigurdsson, a member of the Social Democratic Alliance, said: "I have decided to do this to take responsibility. I realised last night that for me, at least, there is no