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Portugal's constitutional court on Friday rejected several aspects of the country's belt-tightening budget for 2013, seen as crucial to austerity efforts promised to creditors by the centre-right government.
The court ruled that some measures in the budget were unlawful, including the scrapping of a 14th month of salary for civil servants and retirees, as well as cuts to unemployment and sickness benefits.
The rulings -- at a time of mounting public anger over the deepening austerity -- could compromise the government's need to apply tough budget measures to meet the terms of a 78-billion-euro ($100 billion) EU-IMF bail-out that was granted in 2011.
Local media said the court decision would see the state lose out on about 1.2 billion euros in savings.
"It's the laws that need to conform to the constitution and not the other way around," court president Joaquim Sousa Ribeiro said in a statement, adding that the decision covers all of 2013 and therefore carries retroactive powers.
Prime Minister Pedro Passos Coelho's office said a an extraordinary ministerial meeting would be held on Saturday "to analyse the content of the constitutional court ruling".
The 2013 austerity budget, approved by parliament last year, was expected to bring Portugal 5.3 billion euros in savings, 80 percent financed by tax increases that Finance Minister Vitor Gaspar has called "enormous" but indispensable to pull the bailed out eurozone country out of the crisis.
The court's budget decision comes as the Portuguese government is being buffeted on several fronts.
Unemployment has reached a record high amid a deeper-than-expected recession, and the budget deficit has swollen alarmingly.
On Wednesday, the government survived a no-confidence motion in parliament that had been brought by the opposition Socialists to highlight growing discontent over austerity measures.