http://news.bbc.co.uk/2/hi/middle_east/4059991.stm
Mr Sharon sacked ministers from the Shinui party, which voted against the government in the defeat of the annual budget in parliament on Wednesday.
Shinui, a secular party, objected to subsidies to religious groups.
The break-up of the coalition triggers a crisis that may derail Mr Sharon's plan to pull out of the Gaza Strip.
Mr Sharon is now looking for new coalition partners to stave off a general election.
Untenable government
He handed letters of dismissal to Shinui ministers within an hour of the vote. The sacking comes into force within 48 hours.
"We had a very amicable discussion with Mr Sharon who expressed his regrets about our departure from the government and we expressed our regrets about how we had to leave the government," said Shinui leader and outgoing Justice Minister Tommy Lapid.
The BBC's Barbara Plett in Jerusalem says the prime minister now heads an untenable government.
His Likud party controls only 40 of the 120 seats, and is itself deeply divided.
Mr Sharon is expected to approach the left-wing Labour Party to join his coalition - but to bring it on board he would have to overcome strong objections within Likud, our correspondent says.
He may also persuade members of a minor religious party, United Torah Judaism, to join him in return for offering religious subsidies in the budget.
Support over Gaza
It is thought Mr Sharon wants to complete a new coalition deal by Monday, when a possible no-confidence vote could otherwise force general elections to be held, two years ahead of schedule.
Correspondents say Labour leader Shimon Peres is keen on the idea of joining the government as foreign minister.
But some Labour politicians may be unhappy about supporting Finance Minister Binyamin Netanyahu's economic policies. Former Prime Minister Ehud Barak is thought to be among those opposed to joining a coalition.
If Labour agrees to join, it would avoid early elections.
It would also mean that Mr Sharon's main coalition partner is fully behind his plan to withdraw from settlements in the Gaza Strip.
Israel is planning to pull all its settlers from Gaza and the troops that protect them under Mr Sharon's disengagement plan. Israel will maintain control of Gaza's borders, coastline and airspace. Four West Bank settlements are also to be evacuated.
Mr Sharon sacked ministers from the Shinui party, which voted against the government in the defeat of the annual budget in parliament on Wednesday.
Shinui, a secular party, objected to subsidies to religious groups.
The break-up of the coalition triggers a crisis that may derail Mr Sharon's plan to pull out of the Gaza Strip.
Mr Sharon is now looking for new coalition partners to stave off a general election.
Untenable government
He handed letters of dismissal to Shinui ministers within an hour of the vote. The sacking comes into force within 48 hours.
"We had a very amicable discussion with Mr Sharon who expressed his regrets about our departure from the government and we expressed our regrets about how we had to leave the government," said Shinui leader and outgoing Justice Minister Tommy Lapid.
The BBC's Barbara Plett in Jerusalem says the prime minister now heads an untenable government.
His Likud party controls only 40 of the 120 seats, and is itself deeply divided.
Mr Sharon is expected to approach the left-wing Labour Party to join his coalition - but to bring it on board he would have to overcome strong objections within Likud, our correspondent says.
He may also persuade members of a minor religious party, United Torah Judaism, to join him in return for offering religious subsidies in the budget.
Support over Gaza
It is thought Mr Sharon wants to complete a new coalition deal by Monday, when a possible no-confidence vote could otherwise force general elections to be held, two years ahead of schedule.
Correspondents say Labour leader Shimon Peres is keen on the idea of joining the government as foreign minister.
But some Labour politicians may be unhappy about supporting Finance Minister Binyamin Netanyahu's economic policies. Former Prime Minister Ehud Barak is thought to be among those opposed to joining a coalition.
If Labour agrees to join, it would avoid early elections.
It would also mean that Mr Sharon's main coalition partner is fully behind his plan to withdraw from settlements in the Gaza Strip.
Israel is planning to pull all its settlers from Gaza and the troops that protect them under Mr Sharon's disengagement plan. Israel will maintain control of Gaza's borders, coastline and airspace. Four West Bank settlements are also to be evacuated.
