Fabio Scarpello, Denpasar – Prime Minister Xanana Gusmao's already fragile government has been dealt a blow with the defection of a coalition partner to the opposition Fretilin, leaving it relying on independents.

The Timorese Social Democratic Association (ASDT) on Saturday signed an agreement with Fretilin to enter into a 'solid coalition" to form the next government. In a joint statement, Fretilin and ASDT called the government "full of nepotism and corruption".

In last year's election ASDT teamed with the Social Democratic Party and won 18 per cent of the vote and 11 seats. The grouping became the country's third political force, after Fretilin and Mr Gusmao's National Council for Timorese Resistance.

ASDT's withdrawal deprives the ruling Parliamentary Majority Alliance (AMP) of five seats, making it reliant on the support of independent parties to stay in power. AMP now holds 37 seats in the 65-seat parliament, while Fretilin controls 21. The new Fretilin-ASDT alliance will have 26 seats and AMP 32.

The key swing seats are held by AD Kota/PPT and Undertim, which control two seats each, and the Party of National Unity (PUN), which holds three.

The smaller parties' votes could be instrumental should Fretilin try to oust Mr Gusmao in a no-confidence vote – which would require President Jose Ramos Horta to ask Mr Gusmao to resign. They could also block parliamentary approval for the budget.

Fretilin spokesman Jose Texeira warned the government could be in trouble when it sought extra funds through a budget review later this month. Dr Texeira did not confirm reports that Fretilin was courting independent parties and other parties from the government coalition.

PUN chairman Fernanda Borges said she would maintain the party's neutral stance. "We are not joining any coalition, and we will continue to call for justice and good governance," said Mrs Borges, whose party enjoys the support of the Catholic Church.

But she said "should the corruption allegations against the government be substantiated, Gusmao would struggle to survive a no-confidence vote".

The ASDT breakaway followed a rift between chairman Francisco Xavier do Amaral and Mr Gusmao, who refused to sack Tourism Minister Gil Alves or Environment Secretary Abilio Lima. The two are ASDT members, but the party recently expelled them, accusing them of corruption, being too close to the Indonesian military and straying from ASDT ideology.