Social Democrat Prime Minister Stefan Löfven is pushing for increased spending on welfare and jobs and has pledged to maintain Sweden's liberal immigration laws in his budget.
The financial package is supported by the Green Party, which is the junior partner in Sweden's coalition.
But the nationalist Sweden Democrats have triggered a political crisis by announcing that they will block the government's budget and support a rival budget from Sweden’s centre-right opposition parties.
This would prevent Löfven's budget from getting enough support to be passed by parliament.
On Tuesday night Prime Minister Stefan Löfven attempted to negotiate with the four centre-right parties that made up the previous governing Alliance under Fredrik Reinfeldt. But the talks broke up without a result.
Annie Lööf, who leads the Centre Party, which is part of the Alliance said: “We’ve explained this before: we will vote for our budget and we are not prepared to renegotiate our budget. We maintain that we think it’s better for Sweden,” she told Sweden's Expressen newspaper.
“Only Stefan Löfven can show a way forward”, she added.
Stefan Löfven has said that he will resign rather than implement the opposition’s budget if it gets voted through.
Speaking at a press conference after his failed negotiations with the Alliance parties, he said:
“There’s nobody on the other side of the table. They don’t want to negotiate, they want to vote for their own budget.”
He added that calling fresh elections “is one of the possibilities available”.
The nationalist Sweden Democrat party told parliament on Tuesday that it had used its ‘kingmaker’ role in reaction to the government's pro-immigration policies.
But Prime Minister Stefan Loefven told reporters that the Sweden Democrats were treating the parliament like a “playhouse”.
His coalition government won 37.9 percent of the vote in a general election on September 14th, making it the largest political bloc in parliament.
Since 2010 all Swedish political parties have refused to cooperate with the anti-immigration Sweden Democrats.
"It's reasonable to speak with us and to hear what our 800,000 voters think," said its acting leader Mattias Karlsson said on Tuesday, criticising the political boycott of his party and describing Sweden's immigration policies as "extreme".
The number of refugee arrivals alone is estimated to reach close to 100,000 in 2015, partly due to Sweden's decision to grant residency to all Syrian asylum seekers.
The country has the highest rate of asylum applications per capita of any EU country.
Speaking on Swedish television network SVT on Wednesday, the acting Sweden Democrat leader added:
"I think the responsibility lies with Stefan Löfven. I have been very clear, just like Jimmie Åkesson was before me, that we are prepared to fractionally solve talks with all parties and dialogue. We know that we have only 13 percent of the votes and can not have an impact on all of our questions. But we were still the third largest party and therefore we think it is reasonable that for any type of conversation with us".