Premier Bohuslav Sobotka said he will meet President Milos Zeman this week to formally submit the government's resignation.

The move reflects tensions in the ruling coalition about six months ahead of parliamentary elections.

Mr Sobotka said there are suspicions that Mr Babis, the country's second-richest businessman, had avoided paying taxes in the past. Doubts have also surfaced about how he gained his wealth.

Mr Babis heads a centrist movement that is favourite to win October's ballot, paving the way for him to become prime minister. He has denied any wrongdoing.

Mr Sobotka's Social Democrats are a distant second, and the Christian Democrats are the third member of the coalition created in 2014.

The premier said it would be an option to fire Mr Babis but that would mean his rival would be given extra time to campaign ahead of the vote.

"That's the reason I'm opting for the only reasonable solution which is available, and that's the government's resignation," he said during a hastily organised news conference.

"A trust of the public in politics is at stake."

He said the move will give the coalition a chance to form a government again, but without Mr Babis. Another option is for parliament to call early elections.

Mr Babis, the most popular government politician, called the move "incomprehensible", and said the premier had damaged everything the government has done.

"(Sobotka) destroys everything," Mr Babis told Czech public radio. "The government was successful, we had results."

"I reject his nonsense."

The president plays a key role in a crisis like this because he has the right to select a new prime minister.

Mr Babis's centrist movement came in a surprise second in 2013 parliamentary elections with an anti-corruption message

He is sometimes dubbed the "Czech Berlusconi", a comparison to Silvio Berlusconi, the Italian media tycoon who until recent years dominated his nation's politics.

Mr Babis has often clashed with the leftist Social Democrats in the government.

Most notably, the Social Democrats pushed through legislation that limits the business activities of government ministers. The law bans ministers from owning media organisations, and bars companies in which ministers have more than a 25% stake from receiving state subsidies and participating in public tenders.

Mr Babis, who owned two major newspapers and the Agrofert conglomerate of 250 companies which receives state subsidies, fiercely opposed the law but has complied with it.

Despite the political bickering, the Czech economy has been doing well, with the lowest unemployment rate in the European Union.