Swedish Prime Minister Stefan Lofven lost a mandatory confidence vote in parliament on Tuesday meaning he will step down, but with neither major political bloc holding a majority it remained unclear who will form the next government.
The vote was mandatory after the September 9 general election delivered a hung parliament.
Lofven ruled out having any contacts with the Sweden Democrats, saying "time after time, their connections to racist and Nazi organizations have been exposed".
After Lofven is officially ousted, the speaker is likely to task Moderate Party leader Ulf Kristersson with forming a new government.
Sweden, like most of Europe, has been hit by an influx of asylum seekers, who are fleeing from the Middle East, South Asia and Africa.
The anti-immigration Sweden Democrats, with 62 seats and shunned by all parties since entering parliament in 2010, backed the Alliance in the vote - an obligatory test of the prime minister's parliamentary support after an election.
But lacking a majority, Kristersson needs support either from the Sweden Democrats, who want to freeze immigration and a vote on membership of the European Union, or the center left.
But neither the left nor right has been willing to negotiate with the Sweden Democrats.
Swedish Prime Minister loses confidence vote, new government now unclear
Swedish Parliament voted 204-142 to remove Lofven as prime minister Tuesday.
However, the Alliance of the Moderates, Centre, Liberal and Christian Democrats have refused to work with the anti-immigration Sweden democrats, insisting the party has neo-Nazi beliefs.
Lofven will lead a transition government until a new administration is installed.
"The Sweden Democrats were founded by neo-Nazi members of the Swedish white supremacy movement".
"Today, after the election, we're doing what we promised", said Ulf Kristersson, leader of of the center-right Alliance opposition. "I want to lead a government that enjoys broad support in Sweden's Parliament, so that we can leave bloc politics behind and take the country forward".
"I am available for talks", Lofven said after the vote Tuesday.
"But we will bring down any attempt to form a government that does not give us any influence", the party's leader Jimmie Akesson warned.
An Alliance government has only "slim chances" of being formed, Linnaeus University political scientist Magnus Hagevi said.