French PM Manuel Valls has submitted the government's resignation to President François Hollande and has been asked to form a new cabinet.
The government was badly shaken on Sunday by criticism over its handling of the economy by economy minister Arnaud Montebourg.
Moments after Mr Valls's resignation Mr Hollande issued a statement.
He asked Mr Valls to set up a new cabinet "consistent with the direction [Mr Hollande] has set for the country".
The prime minister had accused Mr Montebourg of "crossing a yellow line" after the economy minister had attacked austerity measures which he said were strangling France's growth.
Mr Montebourg told a meeting of Socialists in eastern France that the time had come to put up a "just and sane resistance" to the "excessive obsessions of Germany's conservatives".