* President says PM must go before he names replacement
* PM's party withdraws support for his cabinet
* Vote to topple PM due in parliament next week
* Political crisis may impact tax reform, fiscal gap (Adds no-confidence vote due next week)
By Radu-Sorin Marinas and Luiza Ilie
BUCHAREST, June 15 (Reuters) - The fate of Romania's government hung in the balance on Thursday with Prime Minister Sorin Grindeanu refusing to resign in a political crisis that threatens to undermine a sweeping tax overhaul.
Grindeanu's leftist Social Democrat Party (PSD) withdrew its support for his cabinet late on Wednesday, saying he was not implementing the coalition government's programme. It plans to file a no-confidence motion against him in parliament on Monday along with its junior coalition partner ALDE.
The no-confidence vote will be scheduled for Wednesday, the PSD said, and is likely to succeed as the PSD and ALDE have a majority in parliament.
"This way we are defusing the situation, this premier clings to power using various tricks despite having lost our political support. This is circus," ALDE leader Calin Tariceanu said after a coalition meeting to decide on the next steps.
Independent observers said the coalition's bid to oust Grindeanu reflected anger within the ranks over his failed attempt to decriminalise corruption offences by decree.
The decree, seen as the biggest retreat on reforms since Romania joined the European Union in 2007, would have exempted abuse-of-power offences of sums below 200,000 lei ($48,000) from prosecution, shielding hundreds of politicians from justice.
Proposed weeks after Grindeanu, 43, took office after December's parliamentary election, the changes to anti-graft rules caused the largest street protests in Romania since the 1989 fall of communism. Grindeanu had to annul the decree.
Under Romanian law, the president must endorse a premier after consultations with political parties. The nominee must then secure a vote of confidence in parliament.
President Klaus Iohannis's office said on Thursday he would only appoint a new premier if the incumbent resigns or loses a confidence vote.
"President Iohannis requests the urgent resolution of the internal coalition crisis," spokeswoman Madalina Dobrovolschi said. "It is strictly the responsibility of parties in the ruling coalition."
For the PSD's tax changes to come into effect, they need to be approved six months before the enforcement date. So unless a new government approves tax changes this month it is doubtful they will be implemented from January 2018 as planned.
The changes would help rein in the fiscal gap as a 25 percent wage hike for about 1.2 million public sector workers needs to be partly offset by changes to the social security tax system that would bring more money into state coffers.
"The PSD stepped in to remove support for Grindeanu at the right moment. Just two weeks before parliament's summer recess. Grindeanu's decision to effectively block their graft-related plans to try to cushion corrupt officials have weighed decisively on his fate," said analyst Cristian Patrasconiu. (Editing by Janet Lawrence)