By Charles Duxbury And Sven Grundberg 

STOCKHOLM--Sweden's prime minister on Saturday canceled snap elections planned for March after reaching a series of deals with the country's main opposition parties to make it easier for minority governments to function.

Stefan Löfven said his Social Democrats and junior coalition partner the Green Party had reached agreements with four center-right opposition parties to reduce the likelihood of a minority government's budget being voted down, as was the case earlier this month.

Speaking at a news conference in Stockholm, Mr. Löfven identified three areas--pensions, defense and energy--where the government and the opposition would seek common ground on policy. Finding common ground would make it easier for the minority government to push its economic policy through parliament and get at least passive support from the opposition, potentially avoiding a recurrence of the political turbulence Sweden suffered this fall.

The agreement implies that the opposition would abstain where necessary to allow the government to get its budget approved by parliament.

Sweden's political instability began after a regular election in September handed Mr. Löfven's center-left party a relatively narrow victory and no majority in parliament.

The problems mounted when a combination of the four-party center-right bloc and unaligned populist party the Sweden Democrats in early December voted down Mr. Löfven's first budget. That prompted the prime minister to call snap elections for March in the hope of winning a stronger mandate for his policy from voters.

However, concerns were raised early that a new election could merely prolong the uncertainty as the Sweden Democrats had said they would continue to vote against budgets--center right or center left--that didn't drastically cut spending on immigration, a cornerstone of the populist party's manifesto.

In the event, Mr. Löfven stepped back from officially calling fresh elections, something he had said he would formally do on Dec. 29.

The snap election would have been Sweden's first in over half a century.

While populist parties have gained political influence in Nordic neighbors Denmark and Norway, echoing similar developments across Europe, in Sweden the mainstream parties have ostracized the Sweden Democrats.

Mr. Löfven has justified this by saying the Sweden Democrats don't believe all people are of equal worth and raising concerns about the party's connections with the controversial far-right movement of the early 1990s--a past the party has long since disowned and worked hard to distance itself from.

Saturday's cross-party deal underscored the determination of the mainstream parties to keep the Sweden Democrats at arm's length despite an increasing number of analysts and commentators questioning such an approach.

Some analysts have suggested that keeping the Sweden Democrats out of the political conversation only increases their appeal and gives weight to their claim of being Sweden's only true opposition party.

Mr. Löfven said the government's agreement with the opposition extended Sweden's "proud tradition" of being able to work together to solve difficult problems.

The leaders of the four center-right parties said they would continue to represent a strong opposition to the government despite the agreement to seek common ground in certain policy areas.

Because of the way the voting went on the 2015 budget, Mr. Löfven will have to stick with many of the opposition's budget plans--such as tax policy--until he can present a new budget next fall.

The deal robs the Sweden Democrats of much of their power as a parliamentary kingmaker, a role it took on when it won 13% of the vote in the September election.

The party criticized Saturday's cross-party deal, calling it undemocratic.

"You can't just wish away Sweden's third-biggest party," interim leader Mattias Karlsson said.

He said his party would seek a vote of no-confidence in the government, Swedish public service radio reported.

Such a move would have little chance of success, analysts said.

Write to Charles Duxbury at charles.duxbury@wsj.com and Sven Grundberg at sven.grundberg@wsj.com