Portugal's Constitutional Court has ruled that some of the unpopular pay cuts in this year's state budget are unlawful.

The ruling may deny the government about €1.4bn of predicted revenue.

The court's decision today delivers a setback to the austerity strategy agreed between the government and foreign creditors.

Portugal got a loan of €78bn in a bailout two years ago.

The 13 judges said in a statement that certain budget measures were unconstitutional.

The measures included the cutting of holiday pay for government workers and pensioners.

Other measures deemed unconstitutional were the reduction in unemployment and sickness benefit.

Among the reasons for the decision were that the measures neglected guarantees of equality.

Private sector workers are not subject to the measures.

The government made no immediate comment but has scheduled a Cabinet meeting for tomorrow.