Sri Lanka's parliament has passed a no-confidence motion against newly appointed Prime Minister Mahinda Rajapaksa amid raucous opposition, throwing the country deeper into crisis.

Key points: An oral vote carried majority support among opposition politicians

An oral vote carried majority support among opposition politicians This doesn't mean that ousted PM Ranil Wickremesinghe will be re-instated.

This doesn't mean that ousted PM Ranil Wickremesinghe will be re-instated. The Sri Lankan Supreme Court overturned a presidential decree to dissolve Parliament and will continue working for another month

Sri Lanka has been in turmoil since President Maithripala Sirisena fired Prime Minister Ranil Wickremesinghe last month, replaced him with Mr Rajapaksa, a pro-China strongman, and dissolved parliament.

Mr Rajapaksa's allies said they could not accept the vote, shouting "this is illegal", with many wearing shawls emblazoned with the words "for democracy".

The Supreme Court rejected a presidential decree to dissolve parliament and hold fresh elections on Tuesday and the house sat again on Wednesday.

"The (no-confidence) motion was taken to vote by voices on the floor and it had a majority support. Now we are going to sign the papers," said R Sambanthan, leader of an opposition group bitterly opposed to Mr Rajapaska.

Five other opposition MPs also confirmed the move.

Political instability shakes rupee

Newly appointed PM Mahinda Rajapaksa's allies have rejected the vote. ( AP: Eranga Jayawardena )

The instability in the island nation of 21 million people has raised concerns for its economy, already expanding at its slowest pace in more than a decade.

The central bank unexpectedly raised its key policy rates, a move aimed at defending a faltering rupee as foreign capital outflows picked up in Sri Lanka, where both India and China are locked in a tussle for influence.

The parliamentary speaker has called the president's sacking of the prime minister to bring a former leader back to power a non-violent coup d'etat.

Mr Rajapaksa, under whose rule Sri Lanka achieved its 2009 victory in a decades-long conflict against rebels from the Tamil minority, is seen as a hero by many among Sri Lanka's Buddhist majority.

He has been accused by diplomats of human rights abuses during the war, which he denies.

Opposition parties to soldier on

Supporters hope that ousted prime minister Ranil Wickremesinghe will be able to return to the job. ( AP: Lahiru Harshana )

Part of the Sri Lankan Supreme Court's rejection of President Sirisena's decree has meant that the parliament will sit for another month.

For a deadlocked legislature, this gives opposition more time to exert more pressure on the fledgling administration of Mr Rajapaksa.

Namal Rajapaksa, an MP in his father's United People Freedom Alliance party, told The Associated Press that they "don't accept this verdict" and will continue as the Government.

Another politician, Ajith Perera, a supporter of Mr Wickremesinghe, said the results of the vote meant Mr Wickremesinghe and his government would be reinstated.

However, at this stage it is unclear if the ousted prime minister will return to the top job.

AP/Reuters