"We don't compromise with people who have voluntarily joined terror organisations," party leader Siv Jensen told reporters in Oslo.
"We don't get enough of the Progress Party's policies through," Jensen added.
Without the Progress Party, the coalition, headed by Prime Minister Erna Solberg, loses its majority in parliament, but she will still remain in charge.
As she announced her party's exit, Jensen said it was "natural" that Solberg would remain prime minister.
The 29-year-old Norwegian woman, who is of Pakistani origin, was married to an Islamic State fighter.
She was repatriated with her two children on humanitarian grounds. The Progress Party had been in favour of bringing back the children but opposed her return.
However the other three parties making up the coalition government ignored the objections and approved it.
The woman is accused of being a member of both the Al-Nusra Front and the Islamic State and was arrested. She was remanded in custody on Monday.
Her five-year-old son and three-year-old daughter, born to different jihadist fighters, have been hospitalised.
A minority administration is set to rule Norway after the Progress Party's decision to leave the coalition government.
"I took Progress into government, I'm now taking Progress out again. I am doing this because it's the only right thing to do. We are simply not seeing enough of our politics implemented to justify further defeats," Jensen said according to NRK.
The Progress Party said that it supported bringing home the woman’s seriously ill five-year-old son, but not the mother.
However, never before in Norwegian political history has a party has left a coalition which has then continued to govern.
The Progress Party leader, who is also the current minister of finance, also sounded a warning for the remaining coalition parties.
“(We will) be a tougher and clearer party going forward,” Jensen said.
She also said that the Progress Party no longer considers itself feel bound by the Granavolden agreement, the January 2019 deal which provided the platform for the now-defunct four-way coalition.
The remaining parties can decide whether to continue governing based on this platform or thrash out a new one. Solberg said at her press conference that the current agreement will remain the basis for government.
But with the Progress Party no longer bound by the agreement and acting purely on its own programme, it can potentially vote against the government on given issues.
Conversely, whilst there is no formal cooperation agreement with the Progress Party, the minority government will be free to work with any party they want – including the opposition – to pass laws in parliament.
Jensen met with Solberg on Monday morning before a meeting with Progress Party leadership prior to announcing the split from the coalition, NRK writes.
Liberal leader Trine Skei Grande and Christian Democrat leader Kjell Ingolf Ropstad arrived at the Prime Minister's office shortly after Siv Jensen left, as did foreign minister Ine Eriksen Søreide and education minister Jan Tore Sanner, the broadcaster writes.
That occurred despite the scheduling of the regular weekly government meeting for later in the day.
Following the 1:30pm Monday announcement, it is likely that the Progress Party will leave government with immediate effect. The party's ministers will probably not remain in their posts for more than a few days, according to NRK.
With AFP
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