|Protesters clashed with riot police in central Athens during anti-austerity demonstrations [Al Jazeera]
George Papandreou, the Greek prime minister, has in a televised address said he will form a new government on Thursday and seek a vote of confidence from his PASOK parliamentary group.
His announcement came shortly after the opposition turned down his offer to stand down to facilitate the formation of a unity government for passing tough austerity measures.
"I will continue on the same course. This is the road of duty, together with PASOK's parliamentary group, its
members, and the Greek people," Papandreou said in a televised address on Wednesday.
"Tomorrow I will form a new government, and then I will ask for a vote of confidence," he said.
He had earlier said the proposed new unity government must support the European Union and International Monetary Fund (IMF) bailout, and should not seek to overhaul it.
But opposition conservatives insisted a unity government was only possible if the bailout was renegotiated. Greek opposition leader Antonis Samaras called for early elections after talks to form the unity government failed.
"It is clear that the only one who can deliver a solution now is the Greek people," Samaras said in a televised statement on Wednesday.
Hours before Thursday's cabinet reshuffle Ektoras Nasiokas, a former deputy health minister, resigned a day after another minister from the ruling party stepped down.
However their resignations will not affect the Socialist's five-seat majority in the 300-member legislature as their seats automatically go to the next party politicians in line.
Alan Fisher, Al Jazeera's correspondent in Athens said both ministers had been making similar criticisms of the Socialist party.
"[They both said] that the system of government, the way things are done here, is broken, that the country's financial system is a mess and that what the country needs is people to come together not to play party politics. And that is why they have walked away, not just from the party, but from parliament".
The day's political developments came as the government debated fresh austerity measures that would extend beyond its term in office amid violence on the streets of capital.
Protesters rallied outside parliament chanting "thieves, traitors" and asked "where did the money go?" as they demonstrated amid a 24-hour national strike organised by major labour unions which saw hospitals, transport and other public services crippled.
Small groups of youths threw stones and petrol bombs at police cordons, and smashed the windows of a luxury hotel on Syntagma square, outside the parliament building.
Police responded to the violence with tear gas.
"I feel rage and disgust," Maria Georgila, a 45-year old public sector workers and mother of two, told the Reuters news agency.
"These are very tough measures and they won't get us out of the crisis. I can't believe they have no alternative."
Alan Fisher, Al Jazeera's correspondent in Athens, said: "There is undoubtedly anger on the streets ... we've also seen people wearing entirely black, putting on masks and goggles."
According to police, 20,000 people turned out for the demonstration, organised by two major unions, although local media put the figure at 40,000.
Another 20,000 people demonstrated in Greece's second city of Thessaloniki, authorities said.
Greece has to pass a 2012-2015 austerity programme worth $40.5bn by June-end or face being cut off from rescue funding by European countries and the IMF.
The measures including a five-year campaign of tax hikes, spending cuts ans sell-offs of state property.
However some politicians in the governing party have publicly criticised the new cuts, with one of them defecting on Tuesday, reducing Papandreou's parliamentary majority to five.
With its credit rating deep in junk status, Greece is being kept afloat by a $159bn EU-IMF rescue loan program and will need additional support to cover financing gaps next year.
To meet its commitments, Papandreou's Socialists abandoned a pledge not to impose new taxes and drew up a four-year privatisation programme worth $72bn. This has fuelled ongoing protests against austerity by public utility employees and other affected groups.
US-based financial services company, Standard & Poor's, slashed Greece's rating to CCC on Monday, dropping it to the lowest of 131 states that have a sovereign debt rating.
This indicates that Greece's creditors may have less chance than Pakistan, Ecuador or Jamaica of getting their money back.