Greece's Prime Minister George Papandreou is pictured during a televised address at Maximos mansion in Athens June 15, 2011. [Photo/Agencies]

ATHENS - Greek Prime Minister George Papandreou plans to form a new cabinet on Thursday and seek a vote of confidence from his fractious Socialist party to try to push through an austerity package and avoid default.

Papandreou must pass the new 5-year campaign of tax rises, spending cuts and sell-offs of state property to receive a new EU/IMF bailout and a 12 billion euro aid tranche that Athens needs to pay back debt that matures in August.

Papandreou may seek to replace his finance minister, George Papaconstantinou, the main architect of hugely unpopular budget cuts demanded by the EU and the IMF as part of Greece's 110 billion euro bailout last year.

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The reshuffle underscores the tenuous political and popular support for the new deal, but analysts say Greece has no choice but to carry on with the austerity measures or face default.

"If Papandreou gets the vote of confidence we will not go to elections and the chances that the mid-term plan passes will increase," Theodore Couloumbis of the ELIAMEP think tank said.

Nonetheless, world stocks and the euro slumped late on Wednesday as the upheaval fed fears of a default.

Papandreou had initially offered to step down and form a unity government with opposition parties, but he abandoned the idea after the conservative New Democracy demanded Athens renegotiate its year-old international bailout.

New Democracy leader Antonis Samaras said the only way out of the crisis was early elections, but analysts said that would only happen in the unlikely event that the government failed to get a vote of confidence.

Political observers also said the reshuffle could persuade rebellious backbenchers in his PASOK party to back the measures despite widespread public anger.

"It's rare that deputies of a ruling party vote in favour of getting out of parliament," Couloumbis said.

Former ECB Vice-President Lucas Papademos is most frequently cited as a candidate to replace Papaconstantinou, who local media have said may be on his way to the Foreign Ministry.

But ALCO's Panagopoulos added that the prime minister may have a hard time convincing people outside the political arena to join his embattled government, which faced mass protests on Wednesday over the prospect of yet another squeeze.