|A devastating explosion in a weapons dump on July 11 has deepened Cyprus' political and economic crisis [EPA]
A partner in Cyprus' ruling coalition has quit the government over disagreements about ongoing talks to reunify the ethnically divided island, officials say.
The move by the centre-right DIKO party on Wednesday leaves President Dimitris Christofias with a minority in parliament and drives him deeper into isolation.
The development comes amid growing speculation that Cyprus, a European Union country, may be forced to seek a financial bailout.
"Despite our continued efforts and repeated appeals, unfortunately, the wished-for understanding between political forces which is so needed in these crucial moments for our country couldn't be achieved," Marios Garoyian, DIKO's leader, said after a meeting with Christofias.
Christofias is now backed only by the communist-rooted AKEL party he has led for 20 years. AKEL has 19 seats in Cyprus' 56-seat parliament and DIKO holds nine.
Stefanos Stefanou, a government spokesperson, said Christofias regrets DIKO's withdrawal and will go ahead with a cabinet reshuffle in the next few days.
"The aim is for the new government is to confront the challenges our country faces with dynamism and determination," Stefanou said.
DIKO's walkout adds to the woes of Christofias, who has been under a constant barrage of criticism over the explosion of 98 munitions-filled containers, which killed 12 people and wrecked a power station that supplied more than half the island's electricity.
The containers were seized in 2009 from a Cypriot-flagged vessel that the UN said contravened an arms embargo against Iran.
Many Cypriots view the explosion as a result of official negligence and have called on Christofias to resign.
The blast is also expected to take a heavy toll on the island's $24.66bn economy, with EU estimates putting the overall cost at $2.83bn. Fixing the power plant alone will cost $992m.
The strain on public finances prompted Athanasios Orphanides, the governor of Cyprus' central bank and a member of the European Central Bank's governing council, to caution that the country may be forced to seek a bailout if planned spending cuts are not broadened and sped up.
This week, the island's biggest lender, the Bank of Cyprus, and several business leaders also said that deep spending cuts are needed fast.
The warning came after finance ministry figures showed that the deficit for the first half of this year had risen to 3.47 per cent from 1.89 per cent in the corresponding period last year.
The government has already been mulling a several tax and cost-cutting measures following several credit rating downgrades because of the bank system's exposure to crisis-afflicted Greece.
Cyprus was split into a Greek Cypriot south and a Turkish Cypriot north in 1974 when Turkey invaded after a coup by supporters of union with Greece.
The island joined the EU in 2004, but only the internationally recognised south enjoys membership benefits.
DIKO had been pressuring Christofias to make deeper spending cuts, but it was the long-running reunification talks that ultimately led to the coalition unravelling.
The talks, into their third year, have made little tangible headway and DIKO has been a vocal critic of Christofias on his handling of the talks, urging him to withdraw proposals such as a rotating presidency in his envisioned federation.
Stefanou, the government spokesperson, said Christofias would not withdraw any proposals during an intensified period of negotiations.
Ban Ki-moon, the UN secretary-general, has told the two sides to reach agreement by October on all core issues, including what to do with private property lost during the war.