King Albert II held a meeting with Leterme early on Thursday afternoon at the Château de Laeken and decided to withhold the acceptance of the PM's resignation.
The king said the crisis could "seriously threaten" its position within the European Union. Leterme resignation comes just two months before Belgium is due to take over the EU's rotating presidency.
“There was no other choice but for the government to resign,” Finance Minister Didier Reynders told reporters.
Reynders said he “regretted” this action and called for everyone to avoid “the country sinking into crisis”.
Leterme became prime minister in March 2008, and had already tendered his resignation in July 2008 and December 2008, when it was finally accepted.
He was then appointed foreign minister in July 2009, before returning to the role of prime minister last November replacing replace Herman Van Rompuy who became president of the European Union.