If the Marxist People's Liberation Front goes forward with its threats to withdraw from President Chandrika Kumaratunga's ruling coalition, the government could collapse.
Kumaratunga's government has been negotiating a deal with the Tigers to share the distribution of billions of dollars in tsunami aid to Tamil-majority areas under rebel control, where rebels have complained that aid didn't arrive fast enough following the devastating December 26 tsunami.
The Marxists have joined the country's influential Buddhist clergy in strongly opposing the emerging deal, arguing it could help the guerrillas achieve their goal of carving out a separate state.
On Friday, the party gave the government a deadline of midnight Wednesday to renounce the plan.
Party leader Somawansa Amarasinghe told a news conference that his party would not allow the government to enter a pact "with a terrorist
"The president has no right to share the sovereignty of this country," Amarasinghe said. "If the president is not going to withdraw this idea, we will be leaving the government on June 16."
The Marxists hold 39 crucial seats in Kumaratunga's 117-seat majority in the 225-member Parliament.
Amarasinghe, surrounded by other top party brass, also slammed Kumaratunga for being "undemocratic and dictatorial."
Kumaratunga has vigorously promoted the deal as a way of forging peace with the Tigers as both sides recuperate from a national disaster that killed at least 31,000 people in Sri Lanka.
Opposition to the proposed deal has hit fever pitch this week with Buddhist monks engaging in protest fasts and top clergymen warning Kumaratunga against going forward.
The rebels began fighting in 1983 for a separate homeland for ethnic Tamils in the north and east, claiming discrimination by the majority Sinhalese.
The conflict killed nearly 65,000 people before the fighting was halted by a cease-fire in 2002, which has largely held. However, subsequent peace talks broke down in 2003.