The German government has collapsed after the chancellor, Olaf Scholz, unexpectedly sacked his finance minister, plunging Europe’s largest economy into political disarray.

Christian Lindner was thrown out of the three-way coalition during a meeting of high-level government members on Wednesday evening, after months of bitter infighting that has contributed to the administration’s growing unpopularity.

Government insiders had suggested Donald Trump’s electoral victory would focus minds in Berlin and force leaders of the Social Democrats, Greens and the FDP to recognise the need for unity. But the discord and rancour in Berlin appeared to show no signs of subsiding.

Hours after Lindner’s sacking, the FDP withdrew the rest of its ministers from the cabinet, spelling the end of the beleaguered and unpopular three-way coalition.

In a televised address to the nation, Scholz said that he will seek a vote of confidence in January that would pave the way for early elections by March.

Scholz said he had offered Lindner a plan to bring down energy costs, boost investment and maintain support for Ukraine.

But Lindner had shown “no willingness” to accept it, Scholz said.

“The situation is serious,” Scholz added. “There is war in Europe, tensions are increasing in the Middle East. At the same time, our economy is stagnating.”

He said: “We need to invest considerably more in our defence and in the Bundeswehr, especially now, after the outcome of the US elections.”

Scholz made little effort to hide his frustration, accusing Lindner of egotism, refusing to compromise and using “small-minded, party political tactics” at a time of growing insecurity.

The chancellor apologised to the German people, saying he “would have liked to have spared you this difficult decision, especially in times like these when uncertainty is growing”, a direct reference to the US presidential election.

Lindner, 45, is the head of the pro-business FDP, which on Friday delivered a controversial 18-page ultimatum calling on the government to radically redraw its budget plans for next year.

He had repeatedly warned of “an autumn of decisions” as difficult budget talks have loomed.

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His sacking is likely to lead to snap elections in March, six months ahead of schedule. Scholz announced his intention to hold a vote of confidence in the Bundestag in mid-January, and suggested that – depending on the outcome of that –elections could be held in March.

After Scholz’s announcement, a clearly fuming Lindner accused the chancellor of having “long failed to recognise that our country needs a new economic awakening” and of “trivialising the economic concerns of citizens”.

His party currently stands at about 4% in the polls – below the threshold needed to gain a place in parliament – but he made little secret of his plans to campaign for a place in a new government. “We remain ready to take responsibility for this country and we will fight to do the same in another government next year,” he said.

The FDP is traditionally the government partner of the conservative CDU/CSU alliance, which is riding high in the polls compared with the coalition parties.

CSU leader Markus Söder demanded fresh elections as soon as January on Wednesday night, saying there could be no “tactical delays” and declaring “the traffic light [coalition] is history” in a reference to the colours of the three parties in the government.

Scholz urged to hold vote of confidence after German coalition collapses – video

The economics minister, Robert Habeck of the Greens, tried to put a positive spin on the removal of Lindner, urging people who had been “afraid and worried” by the outcome of the US election to view it as “the beginning of a new impulse”.

A leading economist, Clemens Fuest of the Ifo Institut, cautiously welcomed the news, saying at a time when Germany was “in an economically difficult situation” it “without question needs a new government that is capable of acting as soon as possible”.

The fallout is expected to plunge Germany into a prolonged period of uncertainty at a time when European leaders have been trying to pull together in the face of challenges including a possible trade war with the US.

As the second biggest backer of Ukraine after the US, Germany also faces concerns that it will be left to take on a far bigger share of the war effort if Trump carries out his threat to reduce support for Kyiv.

In a poll by Forsa published on Wednesday 82% of Germans said they had no faith that the government would fix Germany’s economic crisis before the federal election, which had been scheduled for next September.