He has invoked emergency powers to allow him to make $150m in spending cuts without legislative approval.

Mr Schwarzenegger's decision to cut a car tax on his first day in office put already cash-strapped local governments under further financial pressure.

The Hollywood star's predecessor, Gray Davis, was heavily criticised for his handling of the state's finances.

"I had to do this," Mr Schwarzenegger told reporters.

Cash crunch

Some of the $150m in savings is expected to go towards maintaining police and fire services, which relied heavily on car tax revenues for their funding.

Social welfare and public health programmes are expected to bear the brunt of the cuts.

California's state controller Steve Westly, a Democrat, said he supported Mr Schwarzenegger's move.

"Our police officers and fire fighters must not be held hostage," he said.

"This is an appropriate but temporary solution."

However, some of the Republican governor's other political opponents have questioned whether the move was legal.

New powers

The powers used by Mr Schwarzenegger to force through the budget cuts were granted only last July, when his predecessor was still in charge.

They entitle California's governor to impose cuts of up to 5% on any one item in the budget in the event of an "emergency deficiency."

The budget crisis is expected to provide ammunition to opponents who criticised Mr Schwarzenegger for cutting the car tax without finding alternative revenue sources.

The former Hollywood action hero made cutting the highly unpopular car tax one of his election campaign pledges.

But the move has left California's cities and counties out of pocket to the tune of about $300m.

Officials from some California counties voted earlier this week to take legal action against the state authorities in an effort to secure compensation.

Some economists believe the state's tax revenues for this year, boosted by the strengthening US economy, will come in some $1.8bn than originally forecast, relieving some of the pressure.