Social Democrat (SPD) Chancellor Gerhard Schroeder and conservative leader Angela Merkel will not seal a deal on which of them will be the next German chancellor at a meeting this evening, an SPD spokesman said.
Mr Schroeder, Ms Merkel would inform party executives tomorrow morning of the results from today's meeting, the spokesman told reporters.
The two would then meet again late tomorrow morning to try to thrash out a deal, he added.
Ms Merkel's conservatives won four more parliamentary seats than the SPD in last month's election but Schroeder has refused to step aside, plunging Germany into a political limbo that economists say could do further damage to the ailing economy.
Germany's gross domestic product (GDP) is expected to grow a mere one percent this year, the weakest in the European Union.
Unemployment hit a post-war high in February. Financial markets have been watching the talks closely to see how far Ms Merkel, seen as a keen advocate of structural change, will have to water down her reform agenda to appease the SPD and secure the chancellorship.
If Ms Merkel makes too many concessions it could delay or scupper some of the changes Germany urgently needs to boost its anaemic growth rate, financial analysts say.