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Iceland's president on Tuesday asked the leader of the centrist-agrarian Progressive Party to form a coalition government after a spectacular election comeback at the weekend.
"I have decided to ask the chairman of the Progressive Party, Sigmundur David Gunnlaugsson, to form a new government," President Olafur Ragnar Grimsson told reporters.
The decision was somewhat of a surprise, as many had expected the right-wing Independence Party to be tasked with forming the government.
The Progressives and the Independence Party each won 19 seats in Saturday's legislative election. The Independence Party garnered 26.7 percent of the popular vote, edging out the Progressives which took 24.4 percent.
While the biggest party is traditionally asked to form a government, President Grimsson said he had solicited the Progressive leader because his party showed the biggest election gain by more than doubling its number of seats in parliament, from nine to 19.
"The increased support of the Progressive Party in the election is significant and historic in a way," Grimsson said.
The Progressives and the Independence Party have a history of governing together, and are likely to form a coalition this time.
They were in power together from 1995 until 2007, and their financial deregulation policy during those years has generally been blamed for the 2008 collapse of Iceland's banking system.
The Progressives were as a result punished in the last election in 2009, but support for the party soared earlier this year after a European court ruling vindicated its refusal to use taxpayer money to reimburse British and Dutch savers at failed online bank Icesave.
The president set no time limit for Gunnlaugsson to form a government, but said he and the Progressive leader would meet again next week.
Gunnlaugsson said meanwhile he would meet with other party leaders starting Tuesday to discuss political matters, in particular the party's crunch election issue of how to lower households' mortgage payments.
"It is of great importance that our coalition parties or party are willing to try to reach a solution in that matter," he told reporters.
The Independence Party and the Progressive Party are seen as the most likely coalition, but other combinations are theoretically possible.
Outgoing Prime Minister Johanna Sigurdardottir of the Social Democratic Alliance did not run for re-election as she is resigning from politics, aged 70.
Her party, now headed by Arni Pall Arnason, was the election's biggest loser with just 12.9 percent of votes, or nine seats, less than half as many as in 2009.
The outgoing government was punished by voters after imposing tough austerity measures to shore up the economy following Iceland's 2008 financial meltdown.