Greek prime minister George Papandreou has struck a deal to stand down and let Finance Minister Evangelos Venizelos form a coalition government aiming to win parliamentary approval for Greece's latest bailout, sources close to the deal told Reuters on Friday.
They said Venizelos had won the backing of leaders of some smaller parties to support the coalition, which would also aim to avert an immediate Greek bankruptcy, before calling early elections in a few months.
They stressed that the deal was conditional on Papandreou confirming he would stand down when he speaks in parliament on Friday before a confidence vote in his socialist government.
"There is some concern that Papandreou may change his mind at the last minute and all eyes are on his speech in parliament," one source said, requesting anonymity.
The new government would probably exclude the main opposition New Democracy party, the sources said.
Venizelos, a member of the ruling PASOK socialist party, would be prime minister of the new coalition government and it was not clear whether other parties would be given portfolios.
Forming the coalition would avoid the immediate need for snap elections, which would almost certainly lead to a Greek default on its debts, and gives Athens time to show it can meet its obligations and satisfy international lenders.
Papandreou provoked uproar at home and abroad on Monday when he announced a referendum on the 130 billion euro bailout, agreed by euro zone leaders only last week.
Under heavy domestic and international pressure, he backed down on a vote which could well have rejected the deal, cutting off Greece's last financial lifeline and potentially sinking euro zone leaders' attempts to stop the debt crisis from spreading to the bloc's bigger economies such as Italy and Spain.
The government officially announced earlier on Friday that the referendum would not go ahead.
The conservative New Democracy party had proposed a national unity government with the sole aim of forcing the bailout through parliament before early elections.