Mr Chang and his cabinet offered to quit last week, less than two weeks after his pro-independence Democratic Progressive Party (DPP) was crushed in parliamentry elections by the opposition Kuomintang (KMT) on Jan 12.

A presidential statement said Mr Chang, who took the helm in May 2007, 'has made a significant contribution and is capable of continuing to lead the government to boost the welfare of the people'.

The resignation, a formality before a new parliament convenes Feb 1, would have left Mr Chen having to reshuffle the cabinet.

But since a presidential vote is to be held on March 22, any new premier and cabinet appointed by Mr Chen would have to resign again so his successor can form a new cabinet. Mr Chen's second and final presidential term ends in May.

'As a result, the operations of the government would be interrupted. To stablise the political conditions, the resignation has been rejected,' the statement added.

Mr Chang's resignation came several days earlier than expected, amid rumours of DPP infighting following the parliamentary election debacle.

The KMT won 81 of 113 seats in the new streamlined parliament against the DPP's 27, while KMT allies took the remaining five.

Mr Chen stepped down as DPP chairman immediately after what he admitted had been the 'worse setback' in the party's history.

He was replaced by Frank Hsieh, the DPP's candidate for March presidential elections.

He's locked in a heated race with KMT candidate Ma Ying-jeou, who favours friendly relations with rival China. -- AFP