Under the Ukrainian constitution, the country's political leaders have 30 days to form a new coalition.
If they fail, Yanukovych can exercise his right to dissolve parliament and call snap legislative elections that would otherwise not be due until 2012.
Tymoshenko reacted to Tuesday's announcement by lashing out at Lytvyn for "illegally ruining the democratic coalition" and paving the way for Yanukovych's "anti-Ukrainian dictatorship".
"This was the last barricade worth defending if we wanted to protect our independence, sovereignty, strength and the European development of our country," she said in a televised speech.
"History will hold him responsible."
Parliament is set to hold a confidence vote on Wednesday on Tymoshenko's government.
Tymoshenko's coalition, formed in December 2008, was loosely centered around the political ideals of the Orange Revolution, a series of massive street
protests in 2004 led by former president Viktor Yushchenko and Tymoshenko.
The protests resulted in the Supreme Court overturning Yanukovych's election victory in 2004, and Yushchenko won a revote, with Tymoshenko as his prime minister.
But their constant disagreements and inability to deliver on promises of European integration and economic growth helped to fuel Yanukovych's comeback.
Viktor Nebozhenko, a political analyst in Kiev, said the collapse of Tymoshenko's coalition will likely force her into an opposition role in parliament.
"The dissolution of the coalition makes Tymoshenko's ouster inevitable," he said.
"The Orange forces have been defeated on every front."
Ivan Kyrylenko, the head of Tymoshenko's parliamentary faction, said the government would bow out gracefully if Yanukovych could muster the 226 votes needed for a majority.
"If they can find 226 votes, we will shake their hands and wish them good luck," he said.