The Prime Minister, Jenny Shipley, said she would try to revive the two-party, centre-right coalition through a formal disputes mechanism.
Meanwhile, her conservative National Party would run a minority government. She ruled out an early election.
Mr Peters, leader of the nationalist New Zealand First party, refused to concede that the coalition was dead. The coalition partners have been fighting behind the scenes since Mrs Shipley ousted the former prime minister, Jim Bolger, who used to settle differences with Mr Peters over a late- night bottle of Scotch, last December.
The issue that provoked the showdown was the proposed sale of the government's 66 per cent share in Wellington International Airport to a British-New Zealand consortium. National Party MPs supported the sale, but NZ First demanded a guarantee of majority New Zealand ownership.Reuse content