The 16 hour long Cabinet meeting had led Labour leader and deputy PM Wouter Bos had pulled out of Friday's progressive governance conference in London, at which British PM Gordon Brown was joined by centre-left premiers and party leaders from around Europe.
Labour's withdrawal from the Cabinet leave the government without a majority coalition, and will lead to new elections within three months. The parties face local elections on March 3rd. Dutch public opinion backs the Labour stance on withdrawal, though is equally divided over whether the issue ought to end the government.
The Netherlands has had the most volatile politics in western Europe in the last decade.
Geert Wilders' populist anti-immigration Freedom Party (PVV) hopes to make significant gains, having won 9 seats as the fifth largest party in the last elections in 2006.
Wilder's PVV finished second in the European elections, ahead of Labour, and Reuters reports that the most recent national opinion polls now have the PVV in second place.
A Feb. 14 Maurice de Hond poll put the [Christian Democrat] CDA on 27 seats, followed by the anti-immigrant Freedom Party (PVV) on 25 seats and the centre-right Liberal Party VVD on 22 seats. A Feb. 18 Politieke Barometer poll put the CDA on 32 seats, the PVV on 24 and Labour third with 21.
There are likely to be major political developments ahead of the campaign.
It has been widely anticipated in the Netherlands that Balkenende to be replaced by the Christian Democrats as party leader before the election, with Foreign Minister Maxime Verhagen likely to take over.
That change may well prompt a change in the Labour Party leadership too, with Wouter Bos having twice led the party into elections against Balkenende.
Bos' modernising campaign achieved a significant Labour recovery in the 2003 elections, reversing much of the damage of the heavy defeat in 2002 in a campaign which saw the rise and assassination of the populist Pym Fortuyn. But Bos' Labour Party then had a disappointing result in 2006, as it lost seats and failed to emerge as the largest party. It is much less clear who the next Labour leader might be, with an open field of several potential candidates if there was to be a leadership change.
One outcome of the political crisis will be to make any future Christian Democrat-Labour alliance a very unlikely outcome.
The Christian Democrats have not ruled out forming a coalition including Gert Wilders, and nor has one other centre-right party, the economically liberal VVD, of which Wilders was a member until 2004.
However, the third party in the outgoing coalition, the moderate conservative Christian Union has done so, joining the social democratic, liberal, socialist and green parties in forming a "cordon sanitaire" in which the parties have said they have "unbridgeable differences" which mean that they could not join a government with the Freedom Party.