The Conservative Party tonight offered the Liberal Democrats a referendum on electoral reform in a final bid to secure a coalition that would support David Cameron as prime minister.
Shadow foreign secretary William Hague said there was now an “urgent” choice before the Lib Dems.
“The Liberal Democrats have said to the Conservative Party that they are only prepared to enter into a coalition agreement with a party that will change our electoral system to the alternative vote method of voting,” Mr Hague said.
Earlier British prime minister Gordon Brown said the Liberal Democrats and Labour were nowing aso holding "formal discussions" on the possibility of forming a government. He also announced his decision to step down as Labour leader later this year.
Liberal Democrat legislators sought clarification tonight about details of a possible deal with the Tories, a party negotiator said.
The comments suggested a delay in reaching agreement on a government despite intense pressure from markets which want clarity after Britain's first inconclusive election since 1974.
Negotiator David Laws told reporters that members of the smaller party wanted to hear more from the Conservatives on education spending, a fairer taxation system and voting reform.
"Although we are very, very conscious of the need to make these decisions quickly, and that's a clear decision of the parliamentary party today, we also want to make sure that we get these matters right," Mr Laws said.
Mr Cameron's centre-right Conservatives and the Lib Dems are trying to thrash out a deal that could lead to Britain's first collaborative government for more than 30 years.
The Conservatives won the most seats in parliament in last Thursday's election but are 20 seats short of a majority in the 650-seat parliament. Labour, in power for 13 years, came second and the Lib Dems a distant third.
Conservative and Lib Dem negotiators said earlier they made progress at talks to reach a power-sharing deal, although others called for caution on how quickly a deal could be clinched.