The ultra-Orthodox Shas party decided Friday morning not to join a coalition led by Israeli Foreign Minister Tzipi Livni, dealing a serious blow to her efforts to form the government by early next week, Israel Radio reported.

The party's Council of Torah Sages, headed by Shas spiritual leader Rabbi Ovadia Yoseph, decided in a conference call Friday morning to reject the final offer she had made for raising child allowances for large families, a top priority for the party.

The decision came after Livni, the new leader of Israel's ruling Kadima party, issued an ultimatum late Thursday, saying she would decide by Sunday whether to give up her efforts to form a new Israeli government and go for early elections, or alternatively present a new government to the Israeli parliament Monday.

Shas, which has 12 mandates in the 120-seat Knesset, is a key coalition candidate, without whom Livni will have no majority in the parliament, unless another ultra-Orthodox party, the United Torah Judaism (UTJ) with six mandates, joins without Shas.

That party has however said it will not sit in a government without its fellow ultra-Orthodox party.

Shas' decision greatly raises the odds of early elections in Israel, as Livni's only remaining option is a minority government including the Labour Party, the left-liberal Meretz party and the external support of Arab parties.