The announcement that the labor bill would be pushed through the lower house without a vote triggered widespread protests against the government, with police firing tear gas and rubber pellets at demonstrators, who have since called for further protests.
Protesters described the move as "an insult to the people of this country" and the labor bill as an "unprecedented setback for workers' rights in France, a return to the 19th century."
The act led two opposition parties to file a no-confidence vote, scheduled for Thursday.
While the opposition parties hold only 226 of the 288 seats needed to topple Francois Hollande's government, there are worries that an upset vote could trigger new elections, after Christian Paul, the leader of the Socialists rebel group, was hoping to join forces with Green MPs and create a no-confidence motion "of the left".
Blow Over Labor Reforms
The country is deeply divided over the contentious labor bill, which would create more flexible working hours and relax current regulations.
The government says reform is needed as existing labor laws are too rigid and have played a part in France's unemployment problem. However, critics say the deal plays into the hands of employers and will make it easier to hire and fire workers.
The crisis is another blow for under-fire President Francois Hollande, who has struggled to turn the French economy around, and is facing a serious challenge ahead of next year's presidential elections, with support growing for opposition groups.
Analysts have also pointed out the pressure exerted from Brussels to transform the French economy as a reason behind the French government's insistence on such an unpopular bill.
While the bill goes against many of the traditional principles of the Hollande's Socialist party, commentators have noted how the president has moved to reform the France's labor laws to try and stimulate growth and reduce unemployment.