Conservative leader David Cameron has called on the Liberal Democrats to make a decision over which party it will support to govern Britain.
The Tories won the most seats at the election last Thursday but were short of a majority and have asked for Lib Dem support to form a government.
But on Monday, the Lib Dems opened formal talks with Labour after Gordon Brown said he would quit as leader, the BBC reports.
Lib Dem leader Nick Clegg said talks had reached a "critical and final phase" and his party would "do our bit to create a stable, good government".
Mr Brown's announcement that he would step down as Labour leader by September came after days of talks between the Tories and Lib Dems and, it emerged, secret meetings between the Lib Dems and Labour.
The BBC reports while many senior Lib Dems had close links to Labour, Mr Clegg would have to weigh up whether a deal with that party - which would still not have enough seats to command an overall majority - could deliver strong and stable government.
Labour and the Conservatives are both trying to woo the Lib Dems with promises on electoral reform.
The Tories reacted to Mr Brown's decision to step down as leader by making a "final offer" to the Lib Dems of a referendum on changing the voting method to the Alternative Vote system.
Labour is offering to put the Alternative Vote system into law and then hold a referendum asking voters to approve it.
The Conservatives secured 306 of the 649 constituencies contested at the election on Thursday but 326 seats are needed for an outright majority.
Labour secured 258 seats, the Lib Dems 57, and other parties 28.
The 650th seat has yet to be decided following the death of a candidate after nominations closed.