Yoshihiko Noda, Japan's prime minister, has won initial approval for his signature tax-increase plan, but enough fellow party members voted no to threaten a split, which could trigger an early election.
The plan to double the sales tax to 10 per cent over three years was approved by the lower house on Tuesday and is seen as a first step towards curbing Japan's snowballing public debt, which already exceeds two years' worth of its economic output, a record for an industrialised nation.
A compromise struck with the opposition in mid-June allowed Noda to break months of policy gridlock and secure the plan's comfortable passage in parliament by 363 to 96 votes.
But 57 legislators from Noda's Democratic Party of Japan voted against the bill.
If 54 or more of them leave the party as a result, the Democrats would lose their majority in the more powerful lower house, raising the prospect of an election well before the next one is due by mid-2013.
Ichiro Ozawa, a powerful Democrat, was quoted by another politician as saying he would not quit after voting against the tax and would instead work to revive the party.
Ozawa, 70, is credited for masterminding the party's 2009 election triumph, but argued the tax increase is a departure from a party platform that promised to curb the powerful bureaucracy and cut wasteful spending before raising taxes.
Ozawa had previously suggested he could leave and form a new party with his followers.
It is not clear, however, how many would follow him and much will depend on what action the party leadership takes against the rebels.
Several commentators have suggested the party could let the dissenters off with a slap on the wrist to avoid exacerbating the split.
"What you are looking at now is a poltician of a rare commodity, because Mr Noda seems to be a conviction politican, unlike many predecessors," Tomohiko Taniguchi, a professor of political economy at Keio University, said.
"No Japanese cabinet has been able to pass through the tax hike for many years."
Cabinet's future in doubt
While the passage of the tax plan in the opposition-controlled upper house looks assured, the ruling-party split casts doubt over the future of Noda's cabinet and the future of further reforms.
The loss of a majority could prompt Noda to step down or dissolve the lower house and call a snap election even though he looks set to accomplish a tax breakthrough that he has made the main goal of his 10-month premiership.
Moody's Investors Service welcomed the vote as a decisive step after years of policy drift.
Japan has been hit by a string of credit downgrades in the past two years largely because of its failure to make progress in tackling its debt.
Opinion polls suggest the Democrats would suffer heavy losses in a snap election, but the rival Liberal Democratic
Party would also come out well short of a majority.
An inconclusive election could spell more uncertainty and political paralysis.
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