The collapse came after a 16-hour Cabinet meeting in which the Dutch Labor Party withdrew from the coalition, Balkenende, a member of the center-right Christian Democratic Party, said.
Balkenende's party wanted to agree to NATO's request to extend the Dutch presence in Afghanistan beyond August of this year, which the Labor Party opposed.
About 2,000 Dutch soldiers have been serving in Afghanistan since 2006, with 21 killed. They were due to withdraw in 2008 but stayed when NATO could find no other replacement.
Balkenende said the two parties could find no common ground on extending troop deployment again.
"Where there is no trust, it is difficult to work together," Balkenende said. "There is no good path to allow this Cabinet to go further."
The coalition's collapse means elections likely will be held later this year, the BBC reported.