Finish Prime Minister Antti Rinne resigned on Tuesday after losing the support of a coalition partner, casting doubt on the future of the governing alliance.
The Centre Party is now considering whether to pull its support for the five-party coalition, a move that could lead to a snap election.
The party was angered after the prime minister was accused of lying by the head of Finland Post – the culmination of a long-running dispute over reforms to the pay and conditions for some postal workers.
Rinne, a Social Democrat who has headed the centre-left government since June, handed his resignation to President Sauli Niinisto, the presidency said.
The Social Democrats will now appoint a successor to try to form a new government.
Sanna Marin, the party’s number two behind Rinne and the current minister of transport, has already said she would be willing to take over.
Political analyst Sini Korpinen said the coalition parties would in all likelihood agree to carry on together, as it was not in any of their interests to bring down the government.
That is especially true for the Centre Party, which “doesn’t want elections because they’d do worse” than last time.
“The most probable [scenario] is that they will carry on, with the same government programme” but possibly changing a few cabinet ministers, she said.
Rinne’s resignation comes after several weeks of political crisis over a plan to move 700 employees of Finland Post, a public limited company with the state as sole shareholder, to a less advantageous collective wage agreement to improve competitiveness.
In September, criticism initially focused on the minister in charge of state ownership, Sirpa Paatero, a member of Rinne’s SDP.
The crisis deepened in November when a large strike broke out, with employees of other industries walking off the job in sympathy with the postal employees, which is permitted under Finnish labour law.
Unions had demanded to know whether the state had approved Finland Post’s reform. Paatero made several contradictory remarks before Rinne stepped in on November 28.
The prime minister denied that the state had approved Finland Post’s plan, but the following day the company’s chairman of the board accused Rinne of lying.
Rinne then announced Paatero’s resignation, but the move was seen as too little too late.