VILNIUS - The Lithuanian government fell today after Labour, the biggest party in the minority coalition, withdrew following allegations of misuse of party and state funds by senior Labour politicians.

Lengthy efforts are now expected to build a new coalition, failing which fresh elections would have to be held.

Analysts said the European Union's decision earlier this month not to allow Lithuania to join the euro zone in early 2007 because of its high inflation rate had weakened the government significantly, without actually precipitating its fall.

Outgoing Prime Minister Algirdas Brazauskas was a major force behind the push to adopt the euro, repeatedly emphasising the importance of the government's timetable and putting his political capital on the line.

Whatever new government emerges, analysts expect little if any change in the pro-western foreign policy of the Baltic state, which joined the European Union and Nato in 2004.

Brazauskas, 73, a political veteran who transformed himself from Lithuania's last communist leader into one of its first democratic presidents and later prime minister, said he was considering retiring from politics.

"I think the time has come for a new and younger generation to take over. I have been prime minister for five years, which has been enough," he told a news conference.

Analysts said the most likely outcome of political talks in the coming weeks was the re-emergence of Brazauskas' Social Democrats, the second largest coalition partner, at the core of a fresh government but under a new leader.

Brazauskas did not refer to the delay in adopting the euro, but analysts said the new government was likely to retain the goal of joining the common currency as soon as possible.

Brussels said earlier this month it would not allow Lithuania to join the euro as planned in early 2007 because it had failed to meet EU rules on curbing inflation.

- REUTERS