Shortly before the end of the First World War in 1918, the Croatian Parliament severed relations with Austria-Hungary as the Entente armies defeated those of the Habsburgs. Croatia and Slavonia became a part of the State of Slovenes, Croats and Serbs composed out of all Southern Slavic territories of the now former Austro-Hungarian Monarchy with a transitional government headed in Zagreb. Although the state inherited much of Austro-Hungary's military arsenal, including the entire fleet, the Kingdom of Italy moved rapidly to annex the state's most western territories, promised to her by the Treaty of London of 1915. An Italian Army eventually took Istria, started to annex the Adriatic islands one by one, and even landed in Zadar. After Srijem left Croatia and Slavonia and joined Serbia together with Vojvodina, which was shortly followed by a referendum to join Bosnia and Herzegovina to Serbia, the People's Council (Narodno vijeće) of the state, guided by what was by that time a half a century long tradition of pan-Slavism and without sanction of the Croatian sabor, joined the Kingdom of Serbia into the Kingdom of the Serbs, Croats and Slovenes. The territory of Croatia largely comprised the territories of the Sava and Littoral Banates.
The Kingdom underwent a crucial change in 1921 to the dismay of Croatia's largest political party, the Croatian Peasant Party (Hrvatska seljačka stranka). The new constitution abolished the historical/political entities, including Croatia and Slavonia, centralizing authority in the capital of Belgrade. The Croatian Peasant Party boycotted the government of the Serbian People's Radical Party throughout the period, except for a brief interlude between 1925 and 1927, when external Italian expansionism was at hand with her allies, Albania, Hungary, Romania and Bulgaria that threatened Yugoslavia as a whole.
In the early 1920s the Yugoslav government of Serbian prime minister Nikola Pasic used police pressure over voters and ethnic minorities, confiscation of opposition pamphlets and other measures of election rigging to keep the opposition, and mainly the Croatian Peasant Party and its allies in minority in Yugoslav parliament. Pasic believed that Yugoslavia should be as centralized as possible, creating in place of distinct regional governments and identities a Greater Serbian national concept of concentrated power in the hands of Belgrade.
During a Parliament session in 1928, the Croatian Peasant Party's leader Stjepan Radić was mortally wounded by Puniša Račić, a deputy of the Serbian Radical People's Party, which caused further upsets among the Croatian elite. In 1929, King Aleksandar proclaimed a dictatorship and imposed a new constitution which, among other things, renamed the country the Kingdom of Yugoslavia. Political parties were banned from the start and the royal dictatorship took on an increasingly harsh character. Vladko Maček, who had succeeded Radić as leader of the Croatian Peasant Party, the largest political party in Croatia, was imprisoned, and members of a newly emerging insurgent movement, the Ustaše, went into exile. According to the British historian Misha Glenny the murder in March 1929 of Toni Schlegel, editor of a pro-Yugoslavian newspaper Novosti, brought a "furious response" from the regime. In Lika and west Herzegovina in particular, which he described as "hotbeds of Croatian separatism," he wrote that the majority-Serb police acted "with no restraining authority whatsoever." And in the words of a prominent Croatian writer, Shlegel's death became the pretext for terror in all forms. Politics was soon "indistinguishable from gangsterism." Even in this oppressive climate, few rallied to the Ustaša cause and the movement was never able to organise within Croatia. But its leaders did manage to convince the Communist Party that it was a progressive movement. The party's newspaper Proleter (December 1932) stated: "[We] salute the Ustaša movement of the peasants of Lika and Dalmatia and fully support them."
In 1934, King Aleksandar was assassinated abroad, in Marseille, by a coalition of the Ustaše and a similarly radical movement, the Macedonian pro-Bulgarian VMORO. The Serbian-Croatian Cvetković-Maček government that came to power, distanced Yugoslavia's former allies of France and the United Kingdom, and moved closer to Fascist Italy and Nazi Germany in the period of 1935-1941. A national Banovina of Croatia was created in 1939 out of the two Banates, as well as parts of the Zeta, Vrbas, Drina and Danube Banates. It had a reconstructed Croatian Parliament which would choose a Croatian Ban and Viceban. This Croatia included a part of Bosnia (region), most of Herzegovina and the city of Dubrovnik and the surroundings.