Austrian Vice-Chancellor and Finance Minister Michael Spindelegger unexpectedly resigned from all his posts on Tuesday, citing lack of support from his conservative People's Party (OVP) in a row over tax reform.
But Social Democrat Chancellor Werner Faymann said he expected his coalition with the OVP to last until the next national elections in 2018.
The OVP has been at loggerheads with its senior coalition partner over how to finance income tax cuts to boost the flagging economy.
Spindelegger, who became finance minister last year after the coalition partners barely maintained a majority in elections, has also faced an internal revolt over his refusal to cut taxes unless that can be financed without new levies.
"There has to be cohesion in a party. If the cohesion is no longer there, then the moment has come to hand over the tiller," he told a snap news conference to announce his resignation, showing no emotion and taking no questions from reporters.
Clashes over economic policy also forced a government reshuffle in France this week as a political battle raged in Europe over whether belt-tightening had gone too far at the expense of economic growth.
"What is surprising is the timing," political analyst Peter Filzmaier said. "No one could imagine that he would be the top candidate in the next parliamentary elections with chances to become chancellor. But...you don't do this at the start of provincial elections in Vorarlberg in four weeks."
The OVP may lose its absolute majority in that western province, with four more state elections due next year.
Spindelegger, a 54-year-old lawyer from Lower Austria, filled an OVP leadership vacuum in 2011 when his predecessor had to step down for health reasons.
Now the party, whose popularity has fallen below 20 percent in opinion polls as the far-right Freedom Party gains, faces another leadership contest.
Chancellor Faymann, responding to questions at a news conference about the durability of the government coalition after Spindelegger's resignation, said: "I expect it will hold until 2018."
The OVP's most popular member by far is Foreign Minister Sebastian Kurz, but analysts say he may be too inexperienced - he turns 28 on Wednesday - to take the party helm. Economy Minister Reinhold Mitterlehner is also mentioned as a potential OVP leader.
Spindelegger was foreign minister before taking over the finance ministry portfolio.
Regional OVP leaders have been grumbling aloud about Spindelegger's leadership for weeks, and the rebellion broke into the open on Tuesday when OVP member and Tyrol Chamber of Labour head Erwin Zangerl called for Spindelegger to go.
"The OVP needs someone who represents the people, not the lobbyists," Zangerl told the Oesterreich tabloid. "He has given enough proof that he no longer understands the people. He is deaf in both ears."
Spindelegger to the last refused to go along with calls for immediate tax cuts at a time of record high state debt.
"Now a situation has arisen where a clear signal is coming from my own party. People who say we have to jump on the populist bandwagon are winning the upper hand," he said.
Wolfgang Bachmayer, managing director of market research institute OGM, said Spindelegger threw in the towel when party bigwigs failed to back him publicly.
"The attacks from his own party got on his nerves. He said he didn't need it. I don't see a political calculation there. The intervention (for him to resign) was from someone no one knows and isn't in the media, but the Chamber of Labour is important," Bachmayer said.
He thought prospects for a deal on stimulus measures had improved with the departure of Spindelegger.
"Faymann will have a few fewer problems now. The governing coalition will be strengthened because consensus will be found on these issues," he said.