The court's rejection of the pension cuts, on the grounds that they affected the public sector only, delivered another blow to the centre-right government's plans to reduce state spending and could complicate Lisbon's plans to exit its EU/IMF bailout in mid-2014.

Cabinet Minister Luis Marques Guedes said after a late night cabinet meeting on Thursday that "in order not to compromise 2014 budget goals we are forced to take transitional steps until a more lasting measure is found."

The cuts ruled out by the court would have saved the state about 380 million euros this year, or about 10 percent of the total budget savings in 2014, when the country has agreed with lenders to cut the budget deficit to 4 percent of gross domestic product from an estimated 5.5 percent in 2013.

Possible new temporary measures would include raising public sector workers' pension contributions from 2.5 percent of their monthly wages at present, Marques Guedes said.

In addition, he said an "extraordinary solidarity contribution" or levy paid by pensioners on their pensions, introduced last year as part of austerity measures, could be widened.

The solidarity contribution now ranges from between 3.5 percent and 10 percent and is applied to monthly pensions starting at 1,350 euros in both public and private schemes. It will be extended to more pensions.

The measures have yet to be specified and will need to be presented to parliament, where the government has a comfortable majority.

The constitutional court, which has rejected several key austerity measures, last year nevertheless deemed the extraordinary contribution as valid, and the government said it expected no legal problems with the temporary solution.

The court is still likely to scrutinise more of the budgeted measures - especially public sector wage cuts - after the leftist opposition and unions vowed to challenge the budget document.

Still, the government won some new support from the president's office on Thursday after President Anibal Cavaco Silva received legal advice that the 2014 budget does not infringe the constitution. The pension cuts rejected by the court were in a separate law from the budget.

Portugal's benchmark 10-year bond yield continued to fall on Friday to its lowest levels since early June, tracking other euro zone peripheral issuers and reflecting confidence that the economic outlook in the euro zone is improving. They now stand at 5.75 percent, down from 6.07 on the last day of 2013.

Not least due to the legal risks, the yield is still more than 2 percent higher than Ireland's, which last month became the first euro zone country to exit a European Union/International Monetary Fund bailout.

(Reporting By Andrei Khalip; Editing by Susan Fenton)