Joerg Haider was in bullish mood unveiling his new party

Mr Haider and his sister, party leader Ursula Haubner, have clashed with party activists over a sharp drop in support.

Mr Haider's new party, the Alliance for Austria's Future, will aim to re-engage lost voters, he said.

Freedom Party ministers in Austria's ruling coalition can join the new party and keep their jobs, Mr Haider said.

"We have reached a crossroads," he said.

"The choice was to return to the opposition benches or, as we wish to do, continue to carry our responsibility to rule with enough support."

Extremists excluded

The Freedom Party polled just 10% of votes cast in a snap election held in Austria last November, almost two-thirds down on its peak of support in 1999.

Mr Haider's opposition to a string of government policies and disagreements with Freedom Party figures had dogged the party since the formation of the latest government.

He recently hinted that he was considering a return to the party fold, but has instead moved to create a new grouping.

Extremists like Andreas Moelzer caused a rift within the party

The new party will exclude several of the Freedom Party's extremist right-wing members.

Instead it will reflect a more moderate tone in line with Mr Haider's current political views.

Ms Haubner told a press conference she intended to keep her current role as social affairs minister.

Austrian Vice Chancellor Hubert Gorbach, another Freedom Party member, also announced his resignation from the party and intention to remain part of the government.

"We are taking the only road that will ensure that this successful government can continue to do its work.