"We had the goal of retaining the majority of town halls but that didn't happen," Passos Coelho said yesterday, congratulating the opposition Socialists for their "significant victory".
"As Prime Minister I will continue along the path we are on, which is essential in order to overcome the economic crisis and restore confidence and growth for Portugal," said Passos Coelho.
"The SDP has suffered its worst results in municipal elections," he said, calling the defeat the "price to pay" for the government's austerity policies.
At the previous municipal elections in 2009, the SDP, together with allied right-leaning parties, won a majority of the municipalities, securing 139 against 132 for the Socialists, who nonetheless won more individual votes.