Nawaz Sharif explains the decision to withdraw from the coalition
Former Pakistani Prime Minister Nawaz Sharif has pulled his PML-N party - the country's second biggest - out of the multi-party governing coalition.
He has been in dispute with the country's biggest party, the PPP, on the reinstatement of judges sacked by former President Pervez Musharraf.
The two sides also disagree over who should be the next president.
The move throws Pakistan into further turmoil at a time of economic gloom and growing threats from militants.
The Pakistani rupee closed at a record low on Monday and shares fell a further two per cent.
Mr Sharif told journalists in Islamabad that the PPP - led by Benazir Bhutto's widower Asif Zardari - had broken promises, in particular over the issue of the judges. "When written documents are repeatedly flouted, trust cannot remain," he said. "We cannot find a ray of hope."
The PPP fears that if all the judges sacked by Mr Musharraf get their jobs back, they may invalidate an amnesty that paved the way for Mr Zardari and Ms Bhutto to return to the country last year.
That would leave Mr Zardari open to prosecution on long-standing corruption charges.
However, Mr Sharif said his party wanted to play a constructive role in opposition, indicating that he would not try to bring down the government for now.
Mr Sharif also said the PML-N was putting forward a 'non-partisan' name forward for the presidential election due on on 6 September, a former Supreme Court chief justice, Saeeduzzaman Siddiqui.
Last week militants killed nearly 70 people in one attack alone
The two party leaders had agreed to reduce the powers of the presidency in a country where the president has in the past dismissed democratically elected governments.
Mr Sharif says as long as the presidency remains a powerful post, a non-partisan candidate acceptable to everyone, rather than Mr Zardari, should have been agreed on.
The BBC's Charles Haviland in Islamabad says the PPP has other parties in coalition and the government will not fall. However, the PPP may find Mr Sharif to be an uncomfortably powerful figure to have in opposition at a time when the country lacks a sense of political direction.
Mr Zardari and Mr Sharif worked together to threaten Mr Musharraf with impeachment which led him to resign last week.
The United States gave huge financial backing to Mr Musharraf during his nine years as president as Pakistan became a front line nation in Washington's self-declared 'war on terror'.
US administration officials are concerned that militants are gaining strength in Pakistan and that the coalition's current policy of negotiating with militants is not working.
Last week a double suicide attack at a munitions attack in the town of Wah in Punjab province left nearly 70 people dead.
The Pakistan Taleban claimed responsibility for what was the heaviest attack on a military installation by a militant group in the country's history.
This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.