Speaking at a press conference on Saturday, Löfven said the move would create instability in the long run for Sweden and decrease chances of future collaboration.
He underscored what was needed was cooperation between the nation's two major political blocks on the right and the left.
Löfven admitted the so-called December Agreement wasn't perfect but said it was an agreed upon deal that should be upheld.
"The December Agreement was neither mine nor the government's first choice," he told reporters. "The best thing for Sweden is and should be cross-party cooperation."
The political deal was hashed out last year between the leaders of the Alliance and the governing Social Democrat-Green coalition when that government risked collapse after their budget was voted down in November 2014.
The agreement was reached in the hopes of averting future crises by allowing the party with the single biggest coalition in parliament to pass its budget.
Looking ahead, Löfven said death of the December Agreement wouldn't mean much for the upcoming vote this month on the government's proposed budget.
"In the short term, the actions of the right-wing parties won't lead to any major changes in Swedish politics," he said. "They've made it clear they will vote for their own separate budget proposals and that means the government's budget will go through parliament."
However, Löfven added that breaking the deal made the political landscape much more uncertain in the long term.
"But we will have to have further discussions will all the Alliance parties on how we maintain stability and move Sweden forward. That's the responsible thing to do in a dangerous and difficult situation," the premier said.