Austrian Chancellor Sebastian Kurz pulled the plug on his coalition government. (File)

Austrian Chancellor Sebastian Kurz dramatically pulled the plug on his coalition government and announced fresh elections Saturday after an explosive camera sting claimed the scalp of his far-right deputy.

Media reports on Friday alleged Vice-Chancellor Heinz-Christian Strache promised public contracts in return for campaign help from a fake Russian backer he met on the island of Ibiza a few months before 2017's parliamentary elections in Austria.

"I have suggested to the president of the republic that new elections be carried out, at the earliest possible date," Kurz said in a televised statement.

On Friday, Germany's Der Spiegel and Sueddeutsche Zeitung published hidden-camera recordings of the sophisticated sting operation at a luxury villa.

"After yesterday's video, I must say quite honestly: Enough is enough," said Kurz, adding that he had been personally insulted in the footage.

"The serious part of this (video) was the attitude towards abuse of power, towards dealing with taxpayers' money, towards the media in this country," he said.

Strache, 49, announced his resignation earlier on Saturday, saying he was the "victim of a targeted political attack" which had used illegal means to entrap him.

Loud cheers erupted at Kurz's announcement among the thousands of demonstrators who had gathered outside the chancellery building in central Vienna over the course of the day to demand the government's resignation.

The "Ibiza affair" scandal appears to have been the last straw for Kurz after a string of controversies over extremist sympathies among officials from Strache's Freedom Party (FPOe).

"Even if I didn't express myself publicly at the time, there were many situations that I found difficult to swallow," Kurz said of his time in government with the FPOe since December 2017.

He said that in meetings on Saturday, FPOe leaders hadn't shown the willingness to make the changes necessary to stay in government.

"Stupid, irresponsible"

President Alexander Van der Bellen said the videos showed a "disturbing moral image which does a disservice to our country and its people", and "a brazen lack of respect for our citizens".

"They are shameful images, and no-one should have to be ashamed of Austria," he said.

He said he would be meeting Kurz on Sunday to discuss the next steps in arranging elections.

In the recordings Strache and his party's group leader in parliament, Johann Gudenus, are seen discussing with a woman purporting to be the niece of a Russian oligarch about how she can invest in Austria.

"Yes, it was stupid. Yes, it was irresponsible. Yes, it was a mistake," he said, describing what he did as "alcohol-influenced macho behaviour".

He appeared close to tears as he apologised to his family, friends and supporters, in particular his wife for trying to impress his "attractive host".

Strache said he was also resigning as FPOe leader, with Transport Minister Norbert Hofer taking over.

In the recordings, the woman says she specifically wants to gain control of the country's largest-circulation tabloid, the Kronen Zeitung.

Strache is seen suggesting that new owners could make staff changes and use the paper to help his party in its election campaign.

He goes on to say the woman would then be able to gain access to public contracts.

According to the newspapers, Strache says that there would be no resistance among the Krone's editorial staff as "journalists are the biggest whores on the planet".

Both the newspapers that published the footage say they don't have any firm information over who set up the elaborate sting.

Politicians "for sale"

Strache in the footage evoked the possibility of privatising part of Austria's public broadcaster ORF and said he would like Austria's media landscape to resemble that of neighbouring Hungary.

Hungary's right-wing nationalist Prime Minister Viktor Orban has overhauled the country's public media into a government propaganda organ while allies have steadily bought up swathes of the private media sector.

The FPOe has mounted repeated attacks on the ORF's coverage, accusing it of being biased against the party.

Strache also appeared to hint at possible ways political donations could be made to a foundation linked to the FPOe and not to the party directly, apparently in order to escape legal scrutiny.

German Chancellor Angela Merkel reacted to the scandal by warning of the dangers of far-right politicians "for sale".

"We are confronted with currents... who want to destroy the Europe of our values, and we must stand up to that decisively," Merkel said.

Austria's government had already been under pressure due to a stream of scandals linked to the FPOe. In April an FPOe vice-mayor had to resign after writing a poem comparing migrants to rats.

The putative link to Russia in the latest scandal is particularly embarrassing as the FPOe has a cooperation agreement with Russian President Vladimir Putin's United Russia party.

The perception of closeness to Russia wasn't helped by Putin attending the wedding of Foreign Minister Karin Kneissl -- nominated by the FPOe -- last summer.