Dutch Prime Minister Mark Rutte has tendered his government's resignation to Queen Beatrix, paving the way for early elections.
His cabinet was plunged into crisis when Geert Wilders' Freedom Party (PVV) quit talks aimed at slicing 16bn euros (£13.1bn) from the budget.
Mr Wilders refused to accept austerity demands to bring the budget deficit in line with EU rules.
His party was not part of the coalition but supported the minority government.
Dutch broadcaster Nos said Mr Rutte spent almost two hours on Monday afternoon at the queen's palace in The Hague where he made the cabinet's resignation official.
After he left, a government statement said that the queen had asked "all ministers and deputy ministers to continue to do everything that is necessary" in the Netherlands' interests.
Mr Rutte's government lasted just 558 days. Only three other Dutch administrations since World War II have been in office for shorter periods, Dutch news agency ANP says.
He will address the Dutch parliament on Tuesday afternoon, which will be followed by a parliamentary debate on the political crisis. A key question facing the political parties is whether to hold general elections before or after the summer recess. Many of the major parties want a vote in late June.
The Dutch economy, the eurozone's fifth largest, has survived the eurozone crisis relatively well with a national debt of around 65% of economic output but its projected budget deficit falls foul of new EU rules requiring eurozone governments to keep below 3% of GDP.
A recent forecast from the Netherlands' Central Planning Bureau estimated that the country's public deficit would rise to 4.7% of GDP.
The Netherlands has been asked to submit its budget measures to the European Commission by 30 April, although it is not clear how firm that deadline is. Since 5 March, the two coalition parties along with the Freedom Party have been trying to reach agreement on budget cuts before the deadline.
Mr Wilders, who was said to have stormed out of talks at the last minute, said the coalition's proposals would harm economic growth and affect many people's spending power. Socialist Party leader Emile Roemer said he too was not prepared to support the attempt to bring the budget deficit below 3% by 2013.
But there are fears that the failure of the budget talks could harm the Netherlands' prized AAA credit rating status and the low yield on government bonds.
The BBC's Anna Holligan in The Hague says that many are now asking if the Netherlands cannot balance its books without the government collapsing, then which government can; and where it leaves the EU fiscal compact, aimed at enforcing budget discipline .
Speaking after a cabinet meeting on Monday morning involving Mr Rutte's liberal VVD and the Christian Democrats (CDA), Finance Minister Jan Kees de Jager said they would "show the financial market and Dutch people that we can also put forward a solid financial policy".
Economic Affairs Minister and CDA leader Maxime Verhagen said on his Twitter feed earlier on Monday that the main concern was "how, on the way to elections, we can keep the economy and finances on the rails".
Dutch daily NRC Handelsblad reported that confidence in the Netherlands had already fallen on the financial markets on Monday, with the gap widening between Dutch and German government bonds.