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Preceding the latest developments, the Social Democrat and Christian Democratic parties took part in negotiations early on Friday, outlining priorities for their proposed government. Discussed were issues of church and state, as well as introducing changes to the make-up of parliament to prevent future parliamentary deadlock. Social Democrat deputy chairman Bohuslav Sobotka said that his party had agreed to a number of significant compromises. Later, Social Democrat head Jiri Paroubek - in Vienna on Friday - denied promising the Christian Democrats half the posts in any new cabinet, but did stress they should hold important posts, for example, the Interior Ministry.

Earlier, before the Christian Democrats' announcement they would pull out of talks on a left-of-centre cabinet, Prime minister designate Mirek Topolanek revealed that his party was prepared to form a caretaker government to lead the country to early elections. Mr Topolanek said that he would present his proposed minority government to the president by the end of the next week. The prime minister designate declined to say who would be named to the new cabinet. But, given the developments later in the day, it is not yet clear whether this proposal will go forward.

If Mr Topolanek does push for a minority Civic Democrat government the decision will be President Klaus' whether or not to appoint the proposed ministers. If he does, the government will then have thirty days to ask the Chamber of Deputies for a vote of confidence.

Talks on the formation of a minority Civic Democrat government have collapsed. Social Democrat leader Jiri Paroubek on Thursday abruptly ended negotiations with the Civic Democratic Party saying that it was now obvious that the two sides could not find common ground on the future government's policy programme. He said he would try to form his own cabinet with the help of the Christian Democrats and received a positive response from the Christian Democrat leader Miroslav Kalousek.

After an emergency meeting of its executive leadership the Civic Democratic Party said it would not support such a government under any circumstances. Prime minister designate Mirek Topolanek said his Civic Democratic Party was prepared to form a caretaker government which would lead the country to early elections and he called on all democrats across the political spectrum to prevent the return of communists to power. Mr. Topolanek also denounced the way that his rival Jiri Paroubek walked out of the bilateral talks on a minority Civic Democrat government saying that he had lied when he said they had collapsed due to the Civic Democrat's unwillingness to compromise. They collapsed, Mr. Topolanek countered, because his rival was hungry for power regardless of the fact that he was defeated in the June general elections.

In related news, the leader of the Green Party Martin Bursik called a press conference on Thursday evening to say that his party would not enter into a coalition or vote for a government supported by the communists.

The political turbulence has slightly weakened the Czech crown and caused concern among investors that the 2007 state budget and 2010 target for the adoption of the euro currency might be affected unless a new government is formed soon.