Portugal's constitutional court on Friday rejected austerity measures included in Lisbon's 2014 budget as part of the centre-right government's ongoing cutbacks after exiting an international bailout two weeks ago.
The country's highest court rejected three out of four measures, which have been opposed by the leftist opposition party, including wage cuts for public employees of more than 650 euros ($900)
The judges also rejected a five percent levy on unemployment benefits and a six percent levy on health payouts, along with controversial cuts to widows' pensions.
The court did, however, approve a measure to reduce supplementary pensions payouts in the public enterprise sector.
Antonio Jose Seguro, secretary general of the main opposition Socialist party, welcomed the ruling and said called for the intervention of President Anibal Cavaco Silva.
The decision comes two weeks after Portugal exited a 78-billion-euro, three-year international bailout programme.
But the economy remains fragile, contracting a 0.7 percent in the first quarter, sending alarm bells ringing.
While public deficit has been halved to 4.9 percent since the bailout began, Portugal's overall debt continues to balloon, reaching 129 percent of output.
Prime Minister Pedro Passos Coelho, whose government recently survived a no confidence motion presented by the Communist Party, said earlier Friday that he "cannot commit to not raising taxes to the extent that I do not know if this is necessary."
Portuguese media predicted the government may increase sales tax from 23 to 25 percent to compensate for the shortfall created by the court's decision, estimated at up to 500 million euros.