British Prime Minister Gordon Brown is to stand down as leader of the Labour Party.
He says an election process will begin and a new leader will be in place by September.
Mr Brown also announced on Monday that formal talks on a possible coalition deal with the Liberal Democrats are to begin, at their request, which he will facilitate.
He said the priority for discussions on what he called a progressive coalition will be a deficit reduction plan.
The Liberal Democrats are also continuing to talk to the Conservative party, which won the most seats in Britain's inconclusive general election.
The Conservatives say they have made a formal coalition offer to the Liberal Democrats, including a referendum on an alternative voting system.
Liberal Democrats leader Nick Clegg says Mr Brown's decision to step down as Labour leader could be an important element in the smooth transition towards a stable government.
Mr Clegg had made it clear during the campaign that he would not be open to a coalition with Labour while Mr Brown was leader. He says negotiations with the Conservatives will also continue.
Conservative negotiator William Hague says his party is willing to give ground on a key Liberal Democrat demand, and move towards a more representative voting system.
The Conservatives secured 306 of the 649 constituencies contested on 6 May: 326 seats are needed for an outright majority.
Labour finished with 258 MPs, down 91, the Lib Dems 57, down five, and other parties 28.
Numbers not enough
If Labour and the Lib Dems joined forces, the BBC reports they would still not have an overall majority.
With the support of the Northern Irish SDLP, one Alliance MP, and nationalists from Scotland and Wales they would reach 328, rising to 338 if the DUP, an independent unionist and a new Green MP joined them.