Chancellor Olaf Scholz claimed Christian Lindner had broken his trust and dismissed him as finance minister. It increases the prospect of snap elections.
Germany’s ruling coalition is on the brink of collapse, triggering potential political chaos in Europe’s largest economy.
It means Chancellor Olaf Scholz and his Social Democratic Party (SDP) face heading a minority government after sacking his finance minister Christian Lindner from the pro-business Free Democrats Party (FDP).
Mr Scholz made the decision after weeks of disputes among Germany’s coalition partners over ways to boost the country’s ailing economy.
Added to that, the government’s popularity has been sinking while far-right and far-left forces have been surging.
He said Mr Lindner “has broken my trust too often”, and claimed he was focused on the short-term survival of his own party. “This kind of selfishness is utterly incomprehensible,” he added.
The three other FDP ministers – for transport, justice, and education – all voluntarily left the government.
“Olaf Scholz refuses to recognise that our country needs a new economic model,” Mr Lindner said. “Olaf Scholz has showed he doesn’t have the strength to give his country a new boost.”
Mr Lindner had rejected tax increases or changes to Germany’s strict self-imposed limits on running up debt.
Social Democrats and the Greens, who are also part of the coalition, want to see massive state investment. They had rejected proposals by the FDP to cut welfare programmes.