STOCKHOLM (AFP) - Sweden's Social Democrat Prime Minister Stefan Loefven called snap elections on Wednesday after a far-right party defeated his budget, plunging the two-month old government into crisis.

The announcement of March 22 polls followed failure by the ruling minority coalition to push its budget past the populist Sweden Democrats, who refused their support in response to the government's pro-immigration policies.

The election "is meant to let voters take a stand in this new political landscape," Loefven said at a briefing.

"The new election will be on March 22."

Loefven's Social Democrats emerged as victors of parliamentary elections in September, joining the Greens in a minority centre-left government that ended eight years of centre-right rule.

However the Sweden Democrats became kingmakers after winning 13 per cent of the vote.

Wednesday's drama was centred on the budget, the ruling coalition's version winning only 153 of 349 votes, while a centre-right alternative was passed - thanks to the Sweden Democrats' help - with 182.

But underlying the right wing's attack on the government was opposition to Sweden's liberal immigration laws, which the Sweden Democrats have described as "extreme."