Thousands of parents were wrongly accused by Dutch authorities of fraudulently claiming child allowance, with many of them forced to pay back large amounts of money and ending up in financial ruin.

The fact that some parents were targeted for investigation by tax officials because they had dual nationality also underscored long-standing criticisms of systemic racism in the Netherlands.

Rutte -- one of Europe's longest-serving leaders, having been in power since 2010 -- said the cabinet would stay on in a caretaker role to oversee the response to Covid-19 until elections in mid-March.

"The buck stops here," Rutte told a press conference after a crisis meeting of his four-party coalition cabinet in The Hague.

"We are of one mind: if the whole system has failed, only joint responsibility can be borne. And that leads to the conclusion that I have just now offered the king the resignation of the entire cabinet."

He added: "The rule of law must protect its citizens from an all-powerful government, and here that's gone terribly wrong."

Rutte defended the decision to resign when the Netherlands is fighting the coronavirus pandemic, with the country facing a surge in cases of a new variant first found in Britain.

Polls say his Freedom and Democracy Party would likely come first in the next elections, putting Rutte in line for a fourth term since 2010.

A hard-hitting parliamentary investigation in December said civil servants cut off benefits to thousands of families wrongly accused of fraud between 2013 and 2019.

Many were required to pay back benefits totalling tens of thousands of euros (dollars). Reports said several couples had split up as a result of the strain.