Premier opposes Labour entry into new coalition

No party won a majority in the Baltic state's weekend elections but the Social Democrats, Labour and Order and Justice parties - who together hold 78 of parliament's 141 seats - had begun talks on forming a coalition.

Now Ms Grybauskaite's intervention could knock Labour's 29 seats out of the equation and potentially force the Social Democrats into an unpopular coalition with outgoing PM Andrius Kubilius's Homeland Union-Christian Democrats, who saw their vote plummet.

Mr Kubilius's neoliberal administration won plaudits from the EU and IMF for its "determined course" in reducing public spending.

That course has led to falling wages, rising unemployment and mass emigration, while Lithuania's population has dropped to less than three million for the first time in decades.

The president, a former EU budget commissioner, defended her decision to veto Labour involvement.

"A party which is suspected of gross violations in the election, false accounting and non-transparent activities cannot participate in the government's function," she said.

But Labour leader Viktor Uspaskich retorted: "The principle of the presumption of innocence must be kept to. The will of the people must not be spat upon."

The left fears that a "rainbow" coalition of the Social Democrats and the right would be trapped in an austerity straitjacket and stick to the very policies the electorate has voted against.