Portuguese President Jorge Sampaio on Friday ruled out an early election to choose a successor for the country's EU-bound prime minister, saying he would instead ask the new leader of the ruling Social Democrats to form the next government.

"I have decided to give an opportunity to the parliamentary majority to form a new government and will extend an invitation to the president of the Social Democrats to form a government," he said in a televised address to the nation.

Lisbon mayor Pedro Santana Lopes, a populist who is further to the right than current Prime Minister Jose Manuel Durao Barroso, was elected the leader of the Social Democrats last week.

Durao Barroso, approved by European Union leaders at the end of June as the next president of the European Commission, handed in his resignation on Monday to Sampaio but is staying on in a caretacker capacity until a new government is sworn in.

He emerged as the leading compromise choice last month after a host of higher-profile candidates were either rejected or declined to enter the race for the presidency of the EU's executive arm.

Durao Barroso will take over from Italy's Romano Prodi as the president of the European Union's executive arm for a five-year term on November 1, provided he wins approval from the European Parliament at a hearing on July 22.

Sampaio, a socialist, had met with former presidents, party leaders and business leaders in recent days as he decided between asking Santana Lopes to form a new government or calling for fresh elections.

"This is a complex decision given the controversy over the best way to solve the problem," he said. "I did not arrive at a decision lightly."

Polls show a majority of Portuguese favoured new elections. All four left-wing parties with representation in parliament had argued that without a fresh vote a new Social Democrat government would lack legitimacy.

But Sampaio said dissolving parliament would create even greater political instability and could hurt the struggling economy.

Within minutes of Sampaio's speech, the leader of the main opposition Socialist Party, Eduardo Ferro Rodrigues, announced his resignation.

"I cannot accept a decision which creates a political solution for the Portuguese government which I consider to be mistaken and dangerous," he told a televised news conference, adding he considered the president's decision to be a "political and personal failure".

Durao Barroso's Social Democrat-led coalition was roundly thrashed at the polls in last month's European parliament elections and trails the main opposition Socialists in opinion surveys.

Opponents of Santana Lopes, including some within his own party, accuse him of being a political lightweight who focuses on attention-grabbing projects of little substance.

Opposition parties have also expressed fears that if he were to form a government he would pursue radically different policies from those of his predecessor.

But Santana Lopes, a former president of Lisbon-based football club Sporting, has said he will maintain the government's current economic and foreign policies.

"The leader has changed but the politics will be the same, although with a new style, a new impulse, with my way of being," he told reporters after the party's National Council elected him as its new leader with 98 votes in favour and three against.

Sampaio sought to allay opposition fears, warning he would use his constitutional powers to ensure the new government followed the general line pursued by Durao Barroso.

"I reiterate that the continuation of key policies -- regarding Europe, foreign policy, defence, justice, as well as policies of fiscal constraint -- must be rigorously respected," he said.