After disagreements with party leader Jens Christian Christensen (1856–1930) on the defence budget Zahle broke with his party and co-founded the Social Liberal Party ("Det Radikale Venstre") in 1905 and became the first chairman of the new party. In 1909 he was able to form a minority government but had to resign as prime minister the year later following an electoral defeat for his party. In 1911 he became mayor of Stege. In 1913 the Social Liberal Party and the Social Democrats got a majority in the lower house and Zahle was able to form a government backed by the Social Democrats. This government was in office until 1920.