Here are 10 big developments in this story:
After submitting the letter of withdrawal, Mr Baalu said, "Our ministers will submit their resignations tomorrow... our leader (M Karunanidhi) will decide whether we give outside support or not."
The DMK wants India to add strong language to the UN Human Rights Council resolution to accuse Sri Lanka of "genocide," and demand an international inquiry into possible war crimes. The party also wants a similar resolution be passed by India's Parliament before the UN vote on Sri Lanka later this week in Geneva.
Parliamentary Affairs Minister Kamal Nath has told NDTV that the government is open to considering amendments for the UN resolution, which is sponsored by the US. But sources say that for its amendments to be accepted, India would need the support of 24 out of 47 member countries, which is unlikely.
Government sources indicate that while India is likely to vote against Sri Lanka in Geneva, and ask for an international investigation into the alleged mass killing of ethnic Tamil civilians, it cannot back the term "genocide" and may use "atrocities" instead in amendments, if it suggests any.
The BJP has said it will not support the government's attempt to introduce a resolution against Sri Lanka in Parliament, asserting that "India's foreign policy cannot be compromised for an alliance." The BJP says a resolution by the Indian Parliament would amount to unwarranted comment and interference with Sri Lanka's internal affairs.
Mr Kamal Nath told NDTV that the government will not be impacted by the BJP's stand and that chief ally Mulayam Singh Yadav has promised his Samajwadi Party will support the resolution.
The DMK has 18 seats in the Lok Sabha and five ministers in the Cabinet. The ruling UPA coalition is already in a minority, but the crucial external support of regional powerhouses Mayawati and Mualyam Singh Yadav means it is not in danger of collapse. (Govt safe: see the math)
The US resolution at the United Nations Human Rights Council (UNHRC) session in Geneva does not call for an international enquiry into alleged war crimes by the Sri Lankan defence forces in the final phase of the country's civil war with the separatist Tamil Tigers. (Read: US resolution toned down)
India is concerned that too strong a resolution will anger Sri Lanka and push it deeper into China's sphere of influence.
The UN has estimated that some 40,000 people were killed in the final months of the Sri Lankan civil war, while rights groups put the death toll even higher. Sri Lanka denies that its forces killed civilians.