Former president Hussain Muhammad Ershad said his Jatiya Party, the country's third largest and a key ally of the AL, would not contest the January 5 elections.
"We will not go to the polls," he told a press briefing, attributing his surprise decision to lack of "atmosphere".
Ershad said his party candidates who had filed nomination papers have been asked to withdraw their candidature ahead of last date of withdrawal set by the Election Commission.
The ruling AL and BNP are at loggerheads over the system for conducting the polls. Prime Minister Sheikh Hasina has formed a multi-party interim set-up while the BNP wants elections under a non-party interim government.
The opposition led by BNP is demanding that the polls should be shelved until the dispute is settled.
Meanwhile, four more deaths today raised the toll to 34 as the protracted opposition-enforced nationwide strike flared up fresh violence across Bangladesh.
One person died when his van crashed into a tree near southeastern port city of Chittagong while an activist of Jamaat-e-Islami was killed in clashes with police at nearby Sitakunda area. Two Jamaat activists were killed in Satkhira.
The burn unit of the state-run Dhaka Medical College Hospital reported the fifth death.
Chief of the unit Dr Samanta Lal Sen demanded an end to incidents of arson, as 10 people succumbed to their wounds in the past several days at the facility.
Prime Minister Hasina had earlier blasted her archrival of "playing with lives of the ordinary people".
Meanwhile, a delegation of the UN rights watchdog is currently on a visit to Bangladesh to assess the situation and accumulate data to prepare a report.
A high-level UN political mission is set to arrive here later this week to bridge gaps between the political divides under a fresh initiative by UN secretary general Ban-Ki-moon to end the political deadlock.
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