The budget proposal was defeated by a 117-108 vote, with five abstentions, reports Xinhua news agency.
According to local media reports, President Marcelo Rebelo de Sousa had said that he would call early elections if Parliament did not approve next year's government spending plan.
Prime Minister Antonio Costa said that the government is leaving the vote "with a clear conscience" and that it is ready to continue governing with severe restrictions on funds or go to elections, as is decided by the president.
He also said he will run in the elections.
"We respect whatever final option you take. For our part, we do not turn our backs on responsibilities. We didn't do it in difficult moments when the European Commission threatened us with sanctions, nor did we do it with the Covid-19 pandemic."
Lisbon, Oct 28
Portugal's Parliament has rejected the minority Socialist government's 2022 budget bill, paving the way for early elections.
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