Left-wing parties ousted Portugal’s ruling centre-right yesterday in the first such move against an elected government since the end of dictatorship in 1974, paving the way for a Socialist-led administration to end years of austerity.

The minority government warned that a retreat on austerity could put Portugal on a similar path to Greece while the left celebrated the chance to raise incomes that were cut during the financial crisis, cut taxes and protect social benefits.

The prospect of a government backed by the far-left Communists and Left Bloc has rattled investors and prompted fears that a fragile economic recovery could be derailed in a country that exited an international bailout only last year.

“The taboo has ended, the wall has been broken,” said Socialist leader Antonio Costa, who has engineered the move to oust the centre-right and team up with the far left. This is a new political framework, the old majority cannot pretend to be what it stopped being,” he said.

Politicians forced the government’s collapse, with 123 voting against its austerity programme in the 230-seat parliament.

Several hundred government supporters gathered in front of parliament singing the national anthem and chanted “Up with [prime minister] Passos [Coelho]” while another group allied to the CGTP labour union rallied in support of the left.

We don’t need to imagine the consequences, it’s enough to look at the recent experience of Greece

Mr Passos Coelho’s centre-right coalition won most votes in an October 4 election and, in keeping with political convention, he was sworn back into office last week by the President.

But, in an unexpected development, the three left-wing parties that amassed a majority in parliament, agreed after the election to put deep ideological differences behind them and group together to get rid of the centre-right.

They formalised their agreement to provide majority backing for a Socialist-led government yesterday just before the vote.

Finance Minister Maria Luis Albuquerque warned parliament that investor confidence was already waning, while failure to cut the budget deficit in line with Lisbon’s EU commitments could provoke a new debt crisis.

“We don’t need to imagine the consequences, it’s enough to look at the recent experience of Greece and the cost of their attempt to end austerity ... More recession, more poverty, more joblessness and more dependence on European and IMF lenders.”

The Socialists insist they would respect EU budget rules as returning incomes to households should boost the economy.

But many economists have questioned their plans.