Vienna, Jan 4 (IANS): Talks on forming a three-party coalition government in Austria collapsed after the smallest party NEOS withdrew from negotiations. However, the remaining two parties have confirmed their intention to continue discussions.

At a press conference, NEOS party leader Beate Meinl-Reisinger cited the People's Party and the Social Democratic Party, the other two parties in the coalition talks, for their lack of reform willingness as the reason for her party's withdrawal.

Meinl-Reisinger said that in view of Austria's recession and the unstable global situation, her party entered the negotiations seeking profound changes, but there has been "no significant progress, but rather setbacks" in the talks, reports Xinhua news agency, quoting Austrian broadcaster ORF.

A major hurdle in the negotiations was planning the new budget as Austria grapples with an economic crisis, The NEOS party leader said.

Despite NEOS' withdrawal, Austrian President Alexander Van der Bellen confirmed on Friday night that the People's Party and the Social Democratic Party had assured him they would continue coalition talks.

Negotiations between the three parties had dragged on since mid-November following Van der Bellen's decision in October to task the People's Party with forming a government.

In September's parliamentary election, the far-right Freedom Party came first with around 29 per cent of the vote, followed by the People's Party and the Social Democratic Party with 26.3 per cent and 21.1 per cent respectively. The NEOS placed fourth.

While the Freedom Party won the parliamentary presidency, it has so far been unable to find coalition partners to form a government.