SYDNEY (REUTERS) - Outspoken Australian Senator Jacqui Lambie quit the political party headed by mining magnate Clive Palmer on Monday to become an independent, potentially affecting the government's ability to pass legislation.

Lambie resigned from the Palmer United Party, which holds the balance of power in parliament, after a dispute over pay for the military and has said she will not support any government legislation until the pay offer is reviewed.

Lambie, who represents the state of Tasmania, was removed from her position as deputy leader of the party last week and was barred from all parliamentary party meetings as the row escalated.

"Being a member of Palmer United has prevented me from voting in this chamber in a way that gives my Tasmania the best chance of recovering and once again becoming prosperous," Lambie told the upper house Senate on Monday.

The Palmer United Party has been a thorn in the side of Prime Minister Tony Abbott's conservative government since it won three Senate seats at last year's general election.

Palmer held the new Senate hostage over the repeal of Australia's controversial carbon tax for weeks as he haggled for concessions, before threatening to block the budget.

With the Palmer United Party now down to two senators, its ability to pass or block legislation has been diminished. However, it also makes it harder for Abbott's government to negotiate deals to get laws passed.

Lambie, 43, a former army corporal, has become one of Australia's most recognisable and colourful politicians in her short time in office. She has garnered headlines for a range of controversial comments, including her belief that China could invade Australia and applauding Russian President Vladimir Putin's "very strong leadership".