Brussels (AFP) - British eurosceptic leader Nigel Farage's group in the European parliament collapsed on Thursday, ending a short-lived alliance that he formed with Italian populist Beppe Grillo after elections in May.

The demise of the Europe of Freedom and Direct Democracy (EFDD) group came after a Latvian legislator pulled out. That meant the group no longer had members from the minimum required seven countries.

It also meant Farage's UK Independence Party (UKIP), which won its first seat in the British parliament in a historic by-election last week, could lose out on millions of euros of political funding from Brussels.

"Latvian MEP Iveta Grigule left EFDD group today. EFDD no longer has members from at least seven countries, so declared dissolved today," parliamentary spokesman Jaume Duch said in a tweet.

After a strong performance in May's European parliament elections, fuelled by growing discontent across a continent suffering from a stalling economy and high unemployment Farage gathered 48 MEPs to form the group.

UKIP members make up the largest contingent, followed by 17 from Italian comedian Grillo's populist Five Star movement.

A furious Farage accused European Parliament leaders of "political blackmail".

He said European parliament president Martin Schulz and the head of the centre-right European People's Party, Manfred Weber, had told Grigule she had to resign to secure the leadership of a parliamentary delegation to Kazakhstan.

- 'Banana republic' -

"President Schulz would be more suited to being the president of a parliament in a banana republic," Farage said.

"It would seem he has exceeded his role that should apply to a neutral chairman or president of a parliament. I believe this is an example of political bias on an extraordinary scale."

Its MEPs will now sit as unattached members, like French far-right leader Marine Le Pen, with whom Farage refused to do a deal after the parliament elections.

UKIP, which wants to pull Britain out of the European Union and is also campaigning for stronger immigration controls, could now lose signficant political funding as a result of not being in a European Parliament group.

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The EFDD group was able to claim an extra 5.6 million euros ($7.1 million) a year in EU subsidies after its formation, according to the Open Europe think-tank.

The European People's Party, which is the largest group in the Brussels parliament, celebrated the collapse of Farage's group.

"First defeat for eurosceptics!" the group tweeted.

The beer-swilling, chain-smoking Farage has built a groundswell of popular support in Britain, presenting himself as an outsider to traditional politics, especially to Conservative Prime Minister David Cameron.

In Britain, two Conservative politicians have defected to UKIP in recent weeks and one, Douglas Carswell, won re-election to parliament last week.

With a British general election just seven months away, Cameron is under increasing pressure from within his own party to beat UKIP at their own game with more right-wing, anti-EU policies.

Cameron has promised to hold a referendum in 2017 for Britain to decide whether to remain in the European Union.