(covers information from Imperial Commonwealth of Planets)
In the final years of the Dominion War, the United Federation of Planets endured great casualties and serious damage to its central infrastructure. The Federation had taken the brunt of the attacks from the Dominion, while the Romulans and Klingons merely acted as secondary reinforcements who were relatively distant from the actual conflict. As a result, the Federation's weakened state had left it vulnerable to instability and internal strife. Bureaucratic management of the considerable territories it held under its control led to the disenfranchisement of many Federation member states, and each one tried to make their voice heard in the Federation Council. The exhausting effort to relieve the afflicted regions, as well as considerable debate and gridlock over the issue of reconstruction, made any form of meaningful progress nearly impossible. With the Federation's resources spread too far and thin over its jurisdiction, many of the outlying worlds began to lose touch with the central government, resulting in the rapid and extreme rise of tensions between participants in Federation politics.
Within a couple months after the treaty with the Dominion was signed, these tensions reached a boiling point. Many planets on the outer sphere of Federation influence voted to secede, and even the core worlds began to express dissatisfaction with how the Federation was handling affairs. A Federation-wide referendum was called, and after all votes were tallied, the decision to dissolve the Federation Council was enacted, signaling the official moment of collapse. The Federation peacefully fractured itself into dozens of smaller planetary and interstellar states, all of them ripe for the picking by larger and more powerful neighbors, such as the Klingons or Romulans. This brief but chaotic period would last for only a little more than a month, before a new regime on Earth began efforts to expand and reunite the lost states under a new imperial order, one that was stronger and more quick to act than the Federation of yesteryear.