STOCKHOLM (Reuters) - Sweden’s political crisis deepened on Wednesday as parliament rejected the caretaker government’s budget in favor of a tax-cutting one from the opposition.

FILE PHOTO: Sweden's Prime Minister Stefan Lofven arrives at an European Union leaders summit in Brussels, Belgium October 17, 2018. REUTERS/Piroschka van de Wouw/File Photo

The vote is a blow for acting Prime Minister Stefan Lofven who has already lost one attempt to win parliament’s approval to form a government and faces another on Friday that he looks unlikely to win.

Sweden has been in deadlock since a September produced a hung parliament. Neither Lofven’s centre-left nor the centre-right have a majority and both blocs refuse to deal with the anti-immigration Sweden Democrats who hold the balance of power.

The speaker told parliament to vote on Friday for a second time on a Lofven government, hoping to force the two blocs into a compromise.

But the Social Democrat leader admitted his chances are slim.

“Unless something dramatic happens, the question of a new government is not going to be solved on Friday either,” he told reporters.

The country must hold fresh elections if parliament fails four times to vote for a government.

The Sweden Democrats, who want to turn away asylum seekers and hold a vote on EU membership, won 17.5 percent of the vote in September and could increase that at a snap election, polls show. The Greens and Liberals could drop below the 4 percent threshold for seats in parliament.

The opposition’s victory in passing a budget drafted by the Moderates and Christian Democrats and backed by the Sweden Democrats will do little to improve relations between the blocs.

Although a new government would be able to adjust spending and revenue plans as soon as it takes power, it will be obligated to respect the 20 billion crowns ($2.2 billion) in income tax cuts included in the budget passed on Wednesday.

GRAPHIC - Election scenarios: tmsnrt.rs/2p45tJh