George Papandreou, the Greek prime minister, has been criticised for his decision to hold a referendum on the proposed EU bailout package, which has triggered fresh crisis in the European markets.
Ireland has called the Greek decision for the referendum as a "Greek grenade", while the Netherlands has termed it a "deal-breaker".
"The summit last week was to deal with the uncertainty in the euro zone...and this grenade is thrown in just a few short days later," Lucinda Creighton, Ireland’s European affairs minister, said on Tuesday.
A senior politician in Germany's ruling centre-right coalition said he was "bemused" by the announcement and made clear that a "no" vote would likely lead to a Greek bankruptcy.
And Carl Bildt, the Swedish foreign minister, tweeted: "I truly fail to understand what Greece intends to have a referendum about. Are there any real options?"
European politicians have complained that Greece was trying to wriggle out of the 130bn-euro rescue deal agreed at a summit only last week.
For their part, the leaders of France and Germany sought to limit the damage to the wider eurozone on Tuesday.
With shares in Europe, particularly of banks who have lent heavily to Greece, falling sharply, President Nicolas Sarkozy and Chancellor Angela Merkel said in a statement they were determined, together with their European partners, to guarantee the complete and timely implementation of the euro debt deal.
They have summoned Papandreou to crisis talks in Cannes on Wednesday to push for a quick implementation of Greece's new bailout deal ahead of a summit of the G20 major world economies.
US stocks slid at the open on Tuesday following the markets across Asia and Europe.
The Dow Jones industrial average dropped by 2.48 per cent, the Standard & Poor's 500 Index was down 2.79 per cent, and Nasdaq Composite Index fell by 2.89 per cent.
The reaction in the European markets was sharp, with the Athens exchange down 6.8 per cent. Germany's DAX and France's CAC-40 both slid 5.2 per cent, London's FTSE was down by 2.21 per cent and Italy's main index slumping 6.7 per cent.
Asian markets also suffered losses, with the Nikkei in Tokyo closing down 1.7 per cent and the Hang Seng in Hong Kong ending the day down 2.5 per cent.
French banks, which are considered to be particularly exposed to any Greek default, suffered the steepest falls: Societe Generale fell 10 per cent, BNP Paribas 8.9 per cent, UniCredit down 12.6 per cent and Credit Agricole down 10 per cent.
The euro has fallen to its lowest level against the dollar for three weeks and borrowing costs rose for Italy and Spain, two other troubled eurozone members.
Against this backdrop, Jean-Claude Juncker, who chairs meetings of eurozone finance ministers, refused to rule out a Greek debt default.
"The Greek prime minister has taken this decision without talking it through with his European colleagues," he said in Luxembourg.
Al Jazeera's Jonah Hull reports from Athens on the political situation in Greece
In Athens, Papandreou faced rebellion from within his ruling PASOK party, while the conservative opposition leader called for snap elections.
He is holding a meeting of his cabinet over the issue.
Six senior members of Greece's ruling party called Papandreou to resigna day after he called for a national referendum, semi-official news agency ANA said.
Earlier, Milena Apostolaki, a parliament member, broke away from PASOK to declare herself an independent, leaving the party with a majority of just two seats in the 300-member legislature.
Al Jazeera’s Jonah Hull, reporting from Athens, said Papandreou’s gamble is not working his way.
"This announcement by the Greek PM seems to have come as a surprise even to his cabinet and there are reports he didn’t even confer with his ministers over this," he said.
"The Greek PM faces no-confidence vote on Friday. He needs 150 plus one vote and that’s the number of votes he has. He needs every single vote.
"There are rumours that there are others among his socialist party who are considering their position. So, it is looking possible at least that Papandreou may not survive Friday’s no-confidence vote."
"The consequences of failure [in case of "no vote" in referendum] would be catastrophic for this country. A messy default on its debt will lead to closure of collapse of banks, losses of saving and pensions, and of course, wider ramifications on eurozone," our correspondent said.
Source: Al Jazeera and agencies