German Vice-Chancellor and Labor Minister Franz Muentefering resigned unexpectedly from his posts on Tuesday, posing a new challenge to Chancellor Angela Merkel's grand coalition of conservatives and Social Democrats (SPD).

Foreign Minister Frank-Walter Steinmeier would take over as vice-chancellor with SPD parliamentary manager Olaf Scholz to be labor minister after Muentefering leaves his posts on Nov. 21, SPD chairman Kurt Beck said on Tuesday.

At a press conference Tuesday afternoon, Muentefering stressed that his decision was based purely on private reasons, that was to spend more time with his wife who has long suffered from cancer.

"This isn't political," he said. "I've had so many fights in my political life. I've never walked away from them."

But this reasoning still cannot dampen public interpretations which link his quit to setbacks he suffered recently concerning Germany's reform policies.

Muentefering, 67, is a veteran politician and former chairman of the Social Democratic Party, the junior partner in Merkel's ruling coalition.

He is viewed as a "stabilizer" in the awkward right-left coalition and has managed to preserve a good working relations with Merkel.

However, a general tendency within the ruling coalition to readjust some painful social reforms adopted by Merkel's predecessor Gerhard Schroeder, has put Muentefering, a close confidant of Schroeder, on defense.

A six-hour negotiating session between leaders of Merkel's conservatives and Social Democrats produced an agreement on Tuesday to extend benefits for older jobseekers, a proposal raised by SPD leader Beck but strongly opposed by Muentefering.

The talks also shelved a minimum wage proposal for postal service workers that has been backed by Muentefering.

Although some analysts believe that Muentefering's departure might reinforce Beck's move to soften up reforms, some other expect Muentefering's successor Steinmeier as well as other leading SPD officials like Finance Minister Peer Steinbrueck to ensure stability and balance in domestic policies.

German media also commented that the new development might consolidate Steinmeier's role as a possible candidate to challenge Merkel in the 2009 national elections.

In reaction to Muentefering's resignation, Merkel said she understood his decision.

"There are situations in life that make clear that there are more important things than politics," she said, adding that she and Muentefering worked together "excellently in an atmosphere of trust" though they disagreed on some issues.

The chancellor also said that she would "naturally" work well with his successors.

Beck reaffirmed on Tuesday that he would stay away outside the federal government instead of assuming Muentefering's posts.

As party chairman, his cooperation with the party's members in government and parliament would provide "more room for maneuver and better possibilities to promote social democratic policies," Beck said.