Greece's centre-right opposition has demanded Prime Minister George Papandreou resign, throwing into disarray plans for a unity government.
Opposition leader Antonis Samaras also called for snap elections before leading his MPs in a dramatic walkout of parliament.Mr Papandreou's government faces a crucial confidence vote later.
He earlier said that opposition support could mean dropping controversial plans for a referendum on an EU bailout.
The developments in Athens have overshadowed a meeting of the G20 leading economic nations in Cannes, which continues for a second day on Friday.
At the end of the first day, the French host, President Nicolas Sarkozy, said France and Germany had helped Greek politicians focus on what was at stake.
President Obama said the summit's main task was to resolve the eurozone crisis.
Summoned to Cannes Mr Papandreou had faced a rebellion in his governing Socialist party (Pasok) over the proposed referendum, which sent markets into turmoil.
The BBC's Gavin Hewitt in Athens says Greece had seen 24 hours of political horse trading and power struggles.
Mr Papandreou's party holds a tiny majority in parliament - 152 out of 300 seats.Last week's hard-fought EU deal to bail out debt-ridden Greece was heralded as a breakthrough.
But Mr Papandreou threw it into doubt by announcing on Monday that Greece would put the deal - which would mean crushing austerity measures - to a referendum.
He was summoned for urgent talks at the G20 summit on Wednesday where the leaders of France and Germany told him that any referendum would turn on the question of whether Greece wanted to stay in the eurozone.
They also put on hold the next tranche of Greece's existing bailout until after a vote was held.
With Greece's euro membership and its bailout lifeline in danger, Mr Papandreou returned to Athens under mounting pressure to resign.
Reassurance After a day of turmoil on Thursday, the prime minister told MPs that talks with the opposition on forming a "broader scheme" - apparently meaning a coalition government - should start immediately.
However, an angry Mr Samaras questioned the motives behind Mr Papandreou's actions.
"I am wondering; Mr Papandreou almost destroyed Greece and Europe, the euro, the international stock markets, his own party in order to ensure what? So that he could blackmail me and the Greek public? Or to ensure what I had already said several days ago; that I accept the bailout agreement as unavoidable?"
Mr Papandreou told MPs the referendum was never an end in itself, and there were two other choices - an election, which he said would bankrupt the country, or a consensus in parliament.
Division within Mr Papandreou's own party was clearly visible when Finance Minister Evangelos Venizelos, addressing Pasok MPs immediately after the prime minister, said Greece must say it was not holding a referendum.
He said Greece should do everything it could to reassure its international partners it would immediately implement the eurozone bailout deal.
The EU bailout deal, agreed last month, would give the heavily indebted Greek government 130bn euros (£111bn; $178bn) and it imposes a 50% write-off on private holders of Greek debts, in return for deeply unpopular austerity measures.
Analysts say eurozone leaders must solve the Greek problem swiftly or risk the crisis spreading to other vulnerable economies, particularly Italy.
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