Portugal's parliament has rejected the proposed state budget for 2022, likely leading to an early election.
The budget proposed by Prime Minister António Costa was defeated by 117 votes to 108, with five abstentions.
Left-wing parties had stated earlier this week that they would not support Costa's Socialist party (PS).
It is the first time a budget law has been rejected in Portugal since the country entered a democracy in 1974.
Portugal's conservative president had warned that he will use his power to dissolve parliament and call early legislative elections if the budget is rejected.
But PM Costa stated on Tuesday that he would not resign and would "face up to the difficulties".
"My conscience is clear," he told MPs after the vote result on Wednesday, although adding that the result was a "personal defeat".
"I did all I could to make this budget work without adding anything to it that would be to the country's detriment."
Costa had earlier appealed to MPs to back the bill and "respect the Portuguese citizens who do not want a political crisis."
The ruling coalition government was thrown into disarray when their ally -- the Communist Party (PCP) -- refused to back the proposed budget.
Meanwhile, the Bloco de Esquerda (BE) -- which has traditionally supported the Socialists -- has been engaged in tense negotiations with the government in recent days.
Both parties have accused Costa's government of not doing enough in the draft budget to increase the purchasing power of ordinary Portuguese citizens and improve public services.
Costa told MPs on Tuesday that his government had made a "serious effort to come closer" to the parties' wishes.
The centre-left PS held only 108 seats in Portugal's 230-seat parliament and was relying on support from allies for the budget to receive approval.
Portugal's President de Sousa issued a stark warning on Monday as the bill seemed likely to be rejected.
"My position is very simple; either there is a budget or there will be a dissolution," the head of state said.
President de Sousa could make an official announcement next week, after consultations with political parties and others.
The next legislative elections in Portugal are currently scheduled for autumn 2023. Recent opinion polls suggest the Socialists would easily win a snap vote but would again fall short of a parliamentary majority.
Portugal's proposed budget is key to reviving the country's economy with €9.7 billion of EU-allocated funds following the COVID-19 pandemic.
Last year's proposal was only narrowly passed after the communist-green coalition of parties abstained from voting.
Costa came to power in 2015 in an unprecedented alliance with left-wing parties to remove Portugal's conservative Social Democratic Party (PSD) from power.
In 2019, however, Costa ruled out a global governability agreement and opted for case-by-case negotiations on legislation.
His party triumphed overall in last month's municipal elections but polled lower than in 2017 and suffered a surprise defeat in the capital Lisbon.
The opposition PSD is set to hold an internal leadership election in December.
Due to constitutional requirements in Portugal, an early election would only take place in January, setting the country's 2022 spending programme back until next April.