Belgian government faces collapse after party quits

Without the backing of the Open VLD, one of five parties in the coalition, the government still has 76 of the 150 seats in the lower house of parliament but it would be hard to govern with such a slim majority.

Open VLD said it had lost confidence in the government over its handling of a dispute between French- and Dutch-speaking parties over electoral boundaries around Brussels.

"We have not agreed on a negotiated solution and therefore Open VLD no longer has confidence in the government," said Alexander De Croo, the party's chairman.

Leterme is in his second term as prime minister. During his first nine-month period in office in 2008, Belgium lurched from one crisis to another, increasing the risk premium investors demanded to hold government bonds

Belgium, home to European Union institutions and NATO, can ill afford to let its domestic problems drag on given that in July it will take over the six-month EU presidency, an organizational role held by each member state in turn.

(Reporting by Antonia van de Velde, writing by Philip Blenkinsop, editing by Timothy Heritage)