The Socialists will now operate as a minority government for the two years before the next elections due in 2010.
"There have been no real reforms in the past few years, that is why we have got to this point... If this is a marriage, this marriage has not been working for some time," Free Democrat leader Janos Koka told delegates at a party conference.
The motion to quit the coalition was passed by 434 votes with 53 against and 32 abstentions.
The economically liberal Free Democrats, who will formally quit on April 30, have 20 seats in the 386-member parliament and the Socialists have 190.
Socialist Prime Minister Ferenc Gyurcsany sacked the health minister last month and killed off health reforms supported by the liberals.
But the Free Democrats have pledged not to bring down the Socialists, largely because their party would face being wiped out if an election was called.
Opinion polls show the party's support is well below the 5 percent of the national vote needed to win parliamentary representation.
The departure of the liberals raises the risk the Socialists may return to their spendthrift ways to try and boost their ratings which stood at just 13 percent in a recent poll, the lowest level of any post-communist government in Hungary.
Although Gyurcsany has pledged to stick to spending cuts, investors are starting to worry again after he spent his way to election victory in 2006.
The Institute of International Finance, a group of 380 major banks and financial institutions, said in a report this month the budget deficit could surge again to 6.5 percent of gross domestic product by 2010.
Last year's deficit was 5.5 percent of GDP, still the largest in the European Union. It was cut from 9.2 percent of GDP in 2006 through higher taxes and cuts in subsidies for energy and drugs.
Any rise in the budget deficit would also land Hungary in hot water with the European Commission which has demanded the country of 10 million people cut its deficit to 3 percent, the level needed for membership of the euro.
The Hungarian forint has largely shrugged off the political crisis and is trading at around 253 to the euro although the central bank has been forced to hike interest rates to 8 percent due to the global market selloff and high inflation.
The main opposition Fidesz party has a wide opinion poll lead although many voters are undecided.
Last Mod: 27 Nisan 2008, 15:39