The move is line with a eurozone leaders' pledge in October to write rules on balanced budgets into national legislation, something achieved by very few members so far.

Chancellor Werner Faymann's coalition failed however to get the required support of two-thirds of MPs to have the so-called "golden rule" on balanced budgets enshrined in the wealthy Alpine country's constitution.

Instead MPs passed a normal law which can be overturned by a simple majority in parliament. It obliges the government to limit the "structural" or non-cyclical federal deficit to 0.35 percent of output from 2017.

Austria's deficit is expected to fall to 3.9 percent of gross domestic product (GDP) this year and 3.2 percent next year, while debt is set to inch up from 73.6 percent of GDP this year to 74.6 percent in 2012.

So far among major eurozone members, only Germany and Spain have passed similar legislation. In France, the opposition Socialists have said they will vote against a proposed budget limit that needs 60-percent support to pass.

Excessive debts, built up after decades of countries living beyond their means, are one of the main factors behind the eurozone crisis, with investors unwilling to buy bonds issued by countries already deep in the red.

Faymann has said Austria, one of the few eurozone countries to have maintained its top-notch triple-A credit rating, would have to achieve around two billion euros ($2.7 billion) in savings every year.

To this end, MPs also overwhelmingly voted in favour Wednesday of receiving no pay rise this year. Lawmakers in Austria, which has the lowest unemployment rate in the EU, have received no salary increase since mid-2008.

With the "grand coalition" government unable to agree on much, it is unclear where else the axe will fall, however.

Rating agency Moody's last month welcomed Austria's moves towards adopting the "golden rule", saying it "indicates a strong political commitment to sound public finances."

It noted however that a "significant" acceleration in deficit reduction was needed to meet the target.

Standard & Poor's warned Monday that it could downgrade Austria and the five other eurozone countries that still have triple-A ratings -- including Germany and France -- if leaders failed to get to grips with the crisis.

A cut of one notch, from AAA to AA+, would increase Austria's interest payments on its debt by three billion euros ($4.0 billion) each year, the government has said.

S&P said it would complete a review of 15 countries' ratings "as soon as possible" following a EU summit starting in Brussels late Thursday billed as the last chance to save the beleaguered single currency.