Liberal Leader Michael Ignatieff killed off the coalition that had threatened to topple the government, agreeing Wednesday to pass the Conservatives' budget with minor conditions.
Stephen Harper's Tories quickly snapped up the offer, asserting it was barely a concession.
A bitter Jack Layton, the NDP Leader who would have served in a coalition cabinet, and Bloc Québécois Leader Gilles Duceppe declared the coalition officially, and decisively, dead.
At a morning news conference, Mr. Ignatieff called Tuesday's budget flawed, and said it did not do enough to protect the jobless by easing employment insurance rules, or provide a clear plan for eventually digging out of deficit.
But he argued that the "united opposition" had managed to extract important concessions for spending on such things as social housing, skills training and universities.
Mr. Ignatieff insisted on an amendment that would require the government to provide fiscal reports on the budget measures, and new ones that might be needed, three times this year - in late March, June and December - and set confidence votes on them that could see the government defeated.
"We're putting this government on probation," Mr. Ignatieff said.
He added: "Canadians don't want another election, and they're tired of political games. They have waited too long for action on the economy for us to fail them now because of partisan interest."
By 4 p.m., the government, relieved that the conditions did not require more substantive concessions, accepted the amendment, saying that providing updates to Parliament and facing votes wasn't really a new burden.
"This is nothing new. … We always report back to Parliament," Government House Leader Jay Hill said.
"The amendment just states the obvious, so we're very pleased to comply with it as we move forward."
Mr. Layton, visibly angry, declared Mr. Ignatieff's conditions a "fig leaf" for caving in to the Tories.
"What you and I heard today is that you can't rely on Mr. Ignatieff to oppose Mr. Harper," Mr. Layton said. "We have a new coalition: Mr. Harper and Mr. Ignatieff."
Mr. Duceppe accused Mr. Ignatieff of abandoning Quebec by supporting the budget, which has measures such as a cap on equalization payments that the province has opposed - indicating that the Bloc now sees itself as fighting on two fronts, against Mr. Ignatieff's Liberals as well as Mr. Harper's Conservatives.
And he predicted that Mr. Ignatieff will repeatedly support Mr. Harper's government in coming months, while threatening to defeat him soon.
In November, the quickly formed Liberal-NDP coalition was on the verge of making the then-outgoing Liberal leader Stéphane Dion the prime minister, and Mr. Harper escaped only by an unprecedented move to prorogue Parliament.
But that sped Mr. Ignatieff, cool to the coalition, into the Liberal leadership.
For the Ignatieff Liberals, Wednesday's demand for regular fiscal reports, and confidence votes on them, was a path out of a quandary.
They were uneasy about tying the party's fate to the NDP in a coalition government, but worried about giving Mr. Harper's budget a free pass.
They chose a mechanism that in theory will allow them periodic opportunities to rake the Tories over the coals on issues such as getting infrastructure projects moving.
But it will also bring regular, self-created pressure to defeat the government on its economic action, or risk being viewed as repeatedly endorsing Mr. Harper's recession-fighting record.
At a 75-minute caucus meeting Tuesday night, Mr. Ignatieff listened to MPs, and then told them Liberals had two options: bring down the government or bring in an amendment, sources said. But it was clear which way he was leaning.
In fact, for the past week, according to a veteran Liberal source, Mr. Ignatieff and key advisers Ian Davey, former Chrétien-era House leader Don Boudria, and former Liberal MP Paul Zed, now Mr. Ignatieff's acting chief of staff, were preparing the amendment.
Although there were hawks in the caucus, a majority of MPs did not want to defeat the government, according to several Liberals.
But some MPs are now concerned that they will once again appear to be caving in to Mr. Harper, as they did under Mr. Dion.
However, some Liberals argue that they have forced Mr. Harper to spend to boost the economy, and now, as the recession worsens, they will be able to skewer him if he fails in making the promises of budget stimulus a reality.
"They're going to find that the trouble with deathbed conversions is that sometimes you live," Liberal MP Bob Rae said.