French PM Manuel Valls has submitted the government's resignation to President Francois Hollande and has been asked to form a new cabinet.
The government was badly shaken on Sunday by criticism over its handling of the economy by economy minister Arnaud Montebourg.
Moments after Mr Valls's resignation Mr Hollande issued a statement.
He asked Mr Valls to set up a new cabinet "consistent with the direction [Mr Hollande] has set for the country".
The prime minister had accused Mr Montebourg of "crossing a yellow line" after the economy minister had attacked austerity measures which he said were strangling France's growth.Mr Montebourg told a meeting of Socialists in eastern France that the time had come to put up a "just and sane resistance" to the "excessive obsessions of Germany's conservatives".
On Saturday, he told Le Monde newspaper that Germany was trapped in an austerity policy that it imposed across Europe".
He was backed up by education minister Benoit Hamon and appeared to have the support of culture minister Aurelie Filippetti, too.
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