Ruling Cypriot communist party Akel flatly rejected key demands from international lenders today.
But party chief Andros Kyprianou called for bailout talks to proceed, urging that any measures taken should be steps that foster growth.
Akel said bluntly that it cannot accept a proposal by the troika - the European Commission, European Central Bank and International Monetary Fund - that oversees eurozone bailouts to end the indexation of public-sector wages and suspend the practice in the private sector for the duration of the rescue programme.
The party also dismissed the troika's call for a privatisation timetable.
"The package, the building blocks submitted by the troika lack proposals aimed at boosting growth," Mr Kyprianou said.
"In all the other countries where the troika's proposals were implemented, not only have their economies failed to recover, but their recessions have deepened," he pointed out.
Mr Kyprianou, who succeeded current Cypriot President Dimitris Christofias at the helm of Akel in 2009, said talks with the troika must begin "without delay" and proceed "as quickly as possible so that we can conclude before Cyprus needs additional funds."
The cabinet met today to discuss its counterproposal to the troika on bailout terms and will continue its deliberations tomorrow, government spokesman Stefanos Stefanou said.
Steps under discussion include trimming the public payroll, increasing property tax, VAT and excise duties on tobacco and alcohol in a bid to get close to the troika's target of €975 million (£780m) of savings between 2012 and 2016.