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The stalemate has wide implications, and not just for Terengganu, whose Sultan is also the current King.
It is yet another fire for the Prime Minister to douse in the aftermath of the March 8 polls which left his ruling Barisan Nasional (BN) and administration weakened.
Malaysia's constitutional monarchs seem to be forming an independent power base. In Terengganu now, as in Perlis last week, the palace has refused to endorse Datuk Seri Abdullah's choice of a chief minister.
The palace prevailed in Perlis.
'Would anyone have imagined the royal houses stepping out as a major influence on the post-polls course of events? Surely not,' wrote The New Straits Times in an editorial yesterday.
Malaysia's nine hereditary state rulers, and the King, are bound by the Constitution. This generally means that they follow the advice of the Prime Minister, but the outcome is uncertain if they refuse.
'That's what we call a constitutional crisis,' said constitutional expert Professor Shad Faruqi.
The government has said that the Terengganu palace is acting unconstitutionally by refusing to swear in the Prime Minister's choice of chief minister after 22 of the 24 BN state assemblymen pledged support for the candidate.
Instead, the palace appointed another BN assemblyman.
The new Law Minister Zaid Ibrahim yesterday said that it was up to the palace to 'undo' the crisis, otherwise it would not end.
But veteran Umno leader and Kelantan prince Tengku Razaleigh Hamzah, who is already looking to replace PM Abdullah as the head of Umno, the main BN component party, disagreed with the government's stance.
In a statement yesterday, he said that the palace had acted within its powers and that the Prime Minister's actions 'suggest stunning ineptness in managing fundamental relationships and straightforward functions of government'.
Constitutional lawyer Malik Imtiaz Sarwar also said that the Sultan had the right to make his own decision.
'What if the Sultan felt that those who pledged support were merely acting according to party dictate?' he said.
State assemblymen who disagreed with the palace's choice could pass a vote of no confidence when the state assembly was convened, he said.
The assembly must be called within 90 days of the election.
If there was a vote, constitutional experts said, the menteri besar could either step down or advise the Sultan to dissolve the assembly and call for fresh polls.
'That's a new ball game altogether. It may bring a new result altogether,' said Prof Shad.
On March 8, BN won 24 of the 32 seats in the state.
Senior Umno leader Muhyiddin Yassin has urged PM Abdullah to resolve the stalemate by seeking an audience with the Sultan to ask for forgiveness if they had hurt him.
Analysts suggest that the impasse could lead to difficult months ahead.
In Malaysia, the King has three main discretionary powers - the appointment of the Prime Minister, dissolution of Parliament before its five-year mandate ends, and the convening of the Conference of Rulers.
Significantly, PM Abdullah might find it difficult to call snap polls - an option widely speculated to be the response should the Barisan Nasional be in danger of losing power if enough of its MPs cross to the opposition.
'But what if the King refuses to act on advice? I have no answer,' said Prof Shad.
The Constitution, he said, relies on acceptance of its rules without sanction.
The government's difficulty is that it cannot afford to be seen attacking the Malay rulers.
'The last few years have seen a discernible upsurge in popular perception that the Rulers constitute a vital check and balance mechanism of the Constitution,' said Prof Shad.
