Italian President Giorgio Napolitano on Saturday said Prime Minister Mario Monti will remain in place for now while two working groups come up with a programme of reforms for any future government amid a deadlock between the main parties.
Napolitano also ruled out resigning -- an extreme-case scenario mooted by some analysts that would have paved the way for early elections to end the impasse created by inconclusive polls last month.
"I am preparing to ask two restricted groups of different personalities" to come up with reform proposals, Napolitano said at a briefing, a day after talks between political leaders failed to resolve the crisis.
Italian media reported that the two groups -- one "political-institutional" and the other "social-economic" would begin work on Tuesday after the Easter break to try and find common ground.
Napolitano said the main parties had adopted "distinctly different positions" on the future government and called for "a greater sense of responsibility".
He also said Monti, a former European commissioner drafted in to drag Italy out of the eurozone debt crisis in 2011, represented "an element of certainty".
The current government "is about to adopt urgent measures for the economy," he added, without giving further details.
Pier Luigi Bersani's centre-left coalition, which secured the most votes in the elections but failed to win a majority, has ruled out an alliance with Silvio Berlusconi's centre-right grouping which came a very close second.
Bersani was asked by Napolitano last Friday to try to form a government but admitted on Thursday that his efforts had come to nothing, after he failed to woo rival parties to support his cabinet.
Berlusconi, a scandal-tainted billionaire tycoon who has been prime minister three times in a 20-year political career, has said a cross-party deal is the only viable solution.
The anti-establishment Five Star Movement party, which came in third, has ruled out support for a party political cabinet but has left open the possibility of backing a government made up of non-political figures.
"Mission Impossible", "Have Pity Please" and "Paralysis" read some of the headlines in the Italian press -- more than a month after elections in the eurozone's third largest economy.
Italians fed up with austerity and politicians' perks voted in their millions for the Five Star Movement led by former comedian Beppe Grillo, which won a quarter of the vote and became Italy's single biggest party.
Developments in Italy are being closely watched by European capitals under similar pressures over budget cuts, as well as investors concerned that Italy could plunge back into the turmoil of the eurozone debt crisis.
The financial markets have been relatively muted so far -- mainly because of confidence in Monti -- but analysts say there needs to be more certainty before markets open on Tuesday.
Monti has been governing with interim powers since December when lawmakers from Berlusconi's People of Freedom party withdrew their support.
Business leaders have warned that bickering politicians have no time to lose as Italy endures a painful recession and severe unemployment.
The government is forecasting the economy will shrink by 1.3 percent this year, and some analysts predict the end result could be even worse.
Despite winning praise abroad for his reforms, Monti came a distant fourth in the polls at the head of a centrist coalition as the social cost of his measures has become increasingly evident.
Analysts have said there could be support for a government made up of non-political figures similar to Monti's but this solution would be a stopgap.
Most analysts say Italy will be forced to hold new elections within months at the earliest or a year at the latest, since stability is unlikely with the current three-way split between parties.