AN AGREEMENT about the shape of the next government could come by the end of the day.

Labour and Liberal Democrat teams are expected to meet again after starting formal talks about a possible coalition last night (May 10).

And the Lib Dems are also considering a fresh offer from Conservatives of a referendum on the Alternative Vote voting system for Westminster elections in return for a coalition deal which would put David Cameron in 10 Downing Street.

Lib Dem MPs and peers discussed their options for more than two hours in a meeting at the House of Commons that stretched on past midnight.

Speaking as the meeting broke up, party leader Nick Clegg said: "We are keen to settle things as soon as we can. I am as anxious as anyone else."

Negotiator David Laws described the meeting as "good and extensive" and said MPs and peers would gather again today.

And a party spokesman said MPs and peers had "endorsed the strategy set out by Nick Clegg and agreed that current negotiations need to be concluded rapidly to provide stable government that lasts".

After four days of discussions following the inconclusive General Election, Lib Dems and Tories appeared to be heading towards some sort of agreement yesterday.

But the Prime Minister Gordon Brown then announced he was standing down as Labour leader.

Mr Brown revealed he had been approached by Mr Clegg for formal talks over a possible deal with Labour and made clear he was ready to stay on as PM in a power-sharing coalition until a successor as Labour leader could be chosen.

Both Labour and Lib Dems described initial talks as "constructive".

One senior Lib Dem source said a decision one way or another could come within 24 hours, describing Tuesday as "crunch time".

At a hastily-arranged Cabinet meeting at 10 Downing Street following Mr Brown's declaration on Monday, potential contenders for the succession agreed they would not announce their candidacy until the outcome of talks on the shape of the Government were concluded.

Labour's ruling National Executive Committee will discuss the leadership contest in a scheduled conference call on Tuesday but is thought unlikely to make decisions on its process or timetable at this stage.

Harriet Harman said she does not intend to stand for the leadership, telling BBC2's Newsnight: "You can't run for leader at the same time as being deputy leader. It is my plan to stay deputy leader."

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