The main moderate party in Macedonia has announced it will leave the governing coalition and has called for fresh elections to be held.

The SDSM and the Liberal Democrat Party are no longer part of the government coalition Branko Crvenkovski

The withdrawal of the Social Democratic Alliance, SDSM, led by Branko Crvenkovski, along with the smaller Liberal Democrat Party, is seen as a major setback for the country's peace process.

The approval of a raft of constitutional changes by the Macedonian parliament last week had raised hopes that the peace process might move forward.

But a bomb explosion outside a European Union office in the city of Tetovo, on Tuesday night indicated that tensions between the Macedonian and minority ethnic Albanian populations remains high.

War crimes

"The SDSM and the Liberal Democrat Party are no longer part of the government coalition," Mr Crvenkosvki told journalists adding that the ministers would leave their posts.

"We have systematic chaos. Only new elections can correct this. Only a new government of strength and unity can carry out peaceful reintegration," an SDSM spokeswoman told the Reuters news agency.

The announcement comes as investigators from the EU and the Hague Tribunal started to unearth evidence at what is said to be a mass grave of war crimes victims near Tetovo.

Both government soldiers and rebels are accused of war crimes

The Macedonian authorities claim that up to 12 Macedonian civilians lie buried at the site, allegedly killed by the members of the ethnic Albanian guerrilla group, the National Liberation Army.

Carla Del Ponte, the chief prosecutor for the Hague tribunal, visited Skopje on Tuesday to announce the investigation of at least two alleged massacres committed by both sides during fighting between government security forces and the NLA earlier this year.

Hard-liners' joy

Correspondents say the SDSM decision to leave the government is likely to strengthen the role of hard-line Macedonian nationalists, who are expected to take over the vacant ministerial seats.

Prime Minister is expected to strengthen his position

But the SDSM withdrawal is not expected to bring down the government, as the remaining parties in the coalition still hold a majority in the Macedonian parliament.

The SDSM has three cabinet posts, including the key defence and foreign portfolios.

Western diplomats have repeatedly tried to persuade the moderates not to leave the government, fearing that Macedonian hard-liners will considerably strengthen their positions.

Under the peace deal signed in August early elections must be held in January next year.

But the SDSM is demanding an immediate vote.