However, in a televised speech the emir announced he had decided to dissolve parliament and hold early elections.
The government has placed the blame entirely on the parliament while the speaker of the Kuwaiti parliament said even the government should share the responsibility of the crisis.
However, a number of parliamentarians had expressed fear that the parliament could be suspended altogether and said if that happened, then they 'will go to the street to oppose it.'
The Kuwaiti parliament has been suspended twice before for five years in 1976 and for six years in 1986.
Kuwait wants to diversify its economy away from gas and oil, emulating Gulf neighbours such as Dubai, Qatar and Bahrain, but a bill to set up a financial regulator and open the stock market to foreign investment has stalled.
While parliament has made some progress on reforms by cutting tax on foreign investors, matters came to a head on Monday after deputies demanded another raise for public sector workers, just a month after the cabinet had approved one.
More than 90 per cent of Kuwaitis work in the public sector.
Saad Al-Anazi, Al Jazeera's correspondent in Kuwait City, said new elections may still not resolve the differences.
"It will still be a tug-of-war," he said. "Here we are going to find there are still some more prices to pay."
Ahmad al-Mulaifi, a parliamentarian, said 'the government should go' and called for changes within the ruling al-Sabah family.
He said the premier had failed to carry out reforms and resolve the nation's crisis.
Kuwaiti commentators on Wednesday said that neither dissolving parliament nor sacking the government would resolve the country's chronic political dilemmas.
Madhi al-Khamees, a columnist, said: "The crisis will not be resolved by sacking the government or its head. It wil not be resolved by dissolving parliament or even by suspending democratic life."
Over the past two years, Kuwait has gone through several political crises triggered by power struggles, the resignation of four governments, dissolution of parliament and general election in 2006.
The country has also been experiencing sectarian tensions after activists from the Shia minority held a rally last month to mourn the death of Imad Mughnieh, Hezbollah militia commander, killed in a car bombing in Damascus, Syria.
Political parties are banned in Kuwait and elections are fought on individual basis though groupings are allowed to operate.
Unlike western-style democracy, the prime minister in Kuwait is picked from the ruling al-Sabah family only.