The party that called the vote, the conservative HDZ, helped install technocrat Prime Minister Tihomir Oreskovic five months ago but fell out with him over a conflict of interest case involving the HDZ leader, Deputy Prime Minister Tomislav Karamarko.
The HDZ plans to propose Finance Minister Zdravko Maric as prime minister. President Kolinda Grabar Kitarovic will start consultations with parliamentary parties on forming a new cabinet on Friday. If no government is formed by the 30-day deadline she must call a snap election.
While the HDZ says it can muster a new majority of at least 76 of parliament's 151 deputies, analysts are sceptical. The HDZ says it has support of 68 at the moment.
"There is just a slight possibility for the HDZ to find a new majority, but I think such a government would be rather unstable and just postpone a snap election, maybe until the end of the year," said political analyst Zarko Puhovski.
At the same time the biggest opposition party, the Social Democrats, and its allies say they hope to gather signatures of a majority of deputies to demand parliament be dissolved to pave the way for an election.
Croatia has one of the weakest economies in the European Union, with high unemployment and public debt. A snap election would slow reforms necessary to fix fragile public finances, improve the investment climate and spur growth that has just started to recover after six years of recession from 2009 to 2014.
Next year Croatia faces a tough financial challenge when it has to repay almost 30 billion kuna ($4 billion) in maturing bonds and interest.
