Dutch Prime Minister Mark Rutte heads into the royal palace to inform the queen that the government collasped over budget cuts.

In a statement he said he offered his coalition's resignation to Queen Beatrix after a split with the populist Freedom Party, which had backed his government for the past 18 months. The move opens the door for elections possibly as early as this summer.

The crisis spells the end of a coalition which has strongly backed a European Union fiscal treaty and lectured Greece on getting its finances in order.

It marks an embarrassing setback for Dutch Finance Minister Jan Kees de Jager, who has taken a tough line with euro zone "budget sinners" such as Greece.

He is vowIng to fight on

(SOUNDBITE) (Dutch) DUTCH MINISTER OF FINANCE JAN KEES DE JAGER SAYING:

"It is clear there are worries about sorting out our public finances, this cabinet, each cabinet, also in the past, the Netherlands has shown to have a strong name when we talk about budgetary discipline and I am convinced that the Netherlands, because it is in the best interest of everyone, also the elderly, that with various majorities we can find the support to adopt the measures needed to have solid public finances."

Turmoil in what is traditionally one of the euro zone's most stable and prosperous members jolted financial markets, already worried that the Socialist frontrunner in French elections.

Elections cannot be held until July at the earliest and are unlikely until after the summer holidays - that would be long after an April 30 deadline when the Netherlands and most other EU countries, must tell Brussels how they will cut their budget deficits.

Deborah Lutterbeck, Reuters