The announcement came a day after a third party, the small, liberal Neos, threw the process into disarray by saying it was quitting the talks, blaming the other parties for failing to take the bold and decisive action it said it had called for.
"I will stand down as chancellor and as leader of the (conservative) People's Party in the coming days and enable an orderly transition," Nehammer said in a video statement on X, after coalition talks with the Social Democrats (SPÖ) continued without the Neos on Saturday.
The eurosceptic, Russia-friendly FPÖ won the last parliamentary election in September with 29% of the vote. It would have needed a coalition partner to govern and, since Nehammer ruled out governing with FPÖ leader Herbert Kickl, no potential partner was immediately available.
Austrian President Alexander Van der Bellen, a former leader of the Greens, therefore tasked Nehammer with forming a government. Now that Nehammer is stepping down, the two most likely options are either that Kickl is tasked with forming a government or a snap election is called.
Support for the FPÖ has only grown since the last election. It holds a lead of more than 10 points over the People's Party (ÖVP) and the SPÖ, opinion polls show.
SPÖ leader Andreas Babler confirmed at a news conference that the talks had collapsed.
"We know what threatens to happen now. An FPÖ-ÖVP government with a right-wing extremist chancellor that will endanger our democracy on many points," Babler said.
