Power-sharing agreement founders on timetable for judges' reinstatement.
Pakistan's ruling coalition split Monday after former premier Nawaz Sharif withdrew over differences on the restoration of judges sacked by ex-president Pervez Musharraf.
The political showdown came two weeks before lawmakers were to choose a new president following the resignation of Musharraf last week and as Pakistan tries to keep a lid on Islamic militants from the Taliban and Al-Qaeda.
"We have decided to quit the coalition and sit on the opposition benches in parliament," Sharif told a news conference following a meeting of his Pakistan Muslim League-N (PML-N) - which was the second-largest party in the coalition.
"We have taken this decision after we failed to find any ray of hope and none of the commitments made to us were fulfilled" by Asif Ali Zardari, head of the Pakistan People's Party (PPP), Sharif said.
"This situation forced us to withdraw our support."
Sharif had set a Monday deadline for some 60 judges to be reinstated, but Zardari's party - the largest in the coalition - had refused to give a timeframe on when that would happen.
Musharraf, a key ally in the US "war on terror", sacked the judges last year under emergency rule to ensure there would be no legal challenges to his re-election as president while holding the dual role as head of the powerful military.
Critics say the PPP may not want to restore the judges out of fear that they could overturn an amnesty on corruption charges that allowed Zardari to return to Pakistan last year.
Sharif accused Zardari, who took over the PPP after his wife and former premier Benazir Bhutto was assassinated in December, of repeatedly breaking promises over the judge issue.
"The PPP also violated the latest agreement reached earlier this month that the judges will be restored 24 hours after the resignation of Musharraf," he said.
"The PPP even nominated Zardari for president and announced the election schedule without consulting our party," he added.
Musharraf resigned amid growing pressure from the coalition, which said it would attempt to impeach him.
Sharif vowed to continue the "struggle for restoration of the judges and genuine democracy in Pakistan" and said his party had chosen a retired Supreme Court chief justice to challenge Zardari in the September 6 presidential poll.
"We have requested Saeed uz Zaman Siddiqui to accept our offer to become presidential candidate," Sharif said. "He is a good Pakistani who is a non-partisan person."
Siddiqui hailed the PML-N as the "most popular party" in the country and said it had followed "politics of principles."
Sharif "underwent hardships but did not give up the objective" of restoring an independent judiciary, he added.
He said Pakistan was facing a host of problems and "despite the break-up of the coalition, both parties should continue to work for the stability of the country."
Sharif said his party would not destabilise the government. "We will play the role of constructive opposition and will not create hurdles for the PPP government."
Zardari, in a televised address late Monday, appealed for Sharif's return to the government.
Expressing disappointment over his withdrawal, he said: "We are sad over Nawaz Sharif's decision. We want to move together and solve the problems facing the nation. We will request Nawaz Sharif to return to the government."
Zardari said there were some "obstacles" in the process of restoring the judges but reiterated that the PPP stood by its original commitment that all deposed judges would be reinstated.
The PPP has enough allies in parliament to hold the government together, but analysts say governing in the long term would be difficult with Sharif in the opposition.
The political bickering has underlined concerns for Pakistan's stability as the country battles Islamic militants in a troubled tribal region near the Afghan border.
Nearly 100 people were killed in suicide bombings in Pakistan last week. Pakistani Taliban say the attacks were carried out in response to a military campaign against them - and have threatened more.
The government said Monday it had banned the main Taliban militant umbrella group, Tehreek-e-Taliban Pakistan, and frozen its bank accounts and assets in Pakistan.
The militants in the Bajaur region offered a unilateral ceasefire on Sunday, which the government rejected.