Spain’s Socialists say they are set to sign a pact with centre-right party Ciudadanos (Citizens) backing left-wing leader Pedro Sanchez’s bid to be prime minister.
A five-point plan for constitutional reform is at the heart of the deal due to be agreed on Wednesday morning.
Mr Sanchez would then seek parliamentary backing to become prime minister in a vote on 2 March.
Spain remains in political limbo following December’s inconclusive poll.
Even if the Socialists (PSOE) and Ciudadanos strike a deal, between them they would command 130 seats – still fall far short of the number of seats required for an absolute majority in the 350-seat lower house.
Acting Prime Minister Mariano Rajoy’s centre-right Popular Party, which took the greatest number of seats in the election, has already tried to form a coalition without success.
The Socialists had been negotiating with the radical left Podemos, but on Tuesday declared they had come to an agreement with Ciudadanos – due to be signed at 11:30 local time (10:30 GMT) on Wednesday.
“If these are the proposals, then we say yes,” said Mr Sanchez during a news conference in Congress on Tuesday afternoon.
The five-point pact would strip immunity from senior officials from being tried in lower courts; depoliticise the judiciary; make it easier for citizens to propose legislative initiatives; remove central government representation within regional administrations; and limit prime ministers to two terms in office.
In addition, reports El Diario (in Spanish), the deal envisages the imposition of a special tax on wealthy estates, an increase in the minimum wage, and corporate tax reform.
However, should a coalition be formed and go on to take power, constitutional reforms would depend on the unlikely support of the PP, which has an absolute majority in the Senate.
And despite the Ciudadanos deal, correspondents caution, the path to a new government remains far from clear.
A symbolic deal – James Badcock, BBC News, Madrid
Ciudadanos has talked to both the PP and Socialists (PSOE). The significance of the deal is that Ciudadanos has picked Mr Sanchez as the man who can deliver meaningful political reforms.
The problem is that this backing is largely symbolic, in that Ciudadanos’ 40 seats cannot give a workable majority to either Mr Sanchez or Mr Rajoy.
Podemos, which could help Mr Sanchez become prime minister if Basque and Catalan parties gave their consent, has said it will not join any deal with Ciudadanos.
Ciudadanos has said it will vote against Mr Sanchez if he signs up to Podemos’s plans to raise income tax and offer Catalans a referendum on independence.
Unless Podemos ditches its radical ideas, fresh elections still seem the most likely option. The Socialist leader will be able to say he tried, and blame Podemos for the impasse.
Once the deal is cemented on Wednesday, Mr Sanchez will put himself forward for an absolute majority vote of confidence by the lower house of parliament on 2 March.
That would require a yes vote or abstentions by either the PP – which has vowed to oppose such a coalition – or by Podemos and several other parties.
Podemos, analysts say, has been a tough negotiator with the Socialists: its leader Pablo Iglesias insistent on an independence referendum in Catalonia, anathema to the Socialists, or perhaps confident his ascendant party could win even more seats in fresh elections next summer.
Podemos is also deeply suspicious of rival newcomer Ciudadanos.
Should Mr Sanchez fail to secure an absolute majority on 2 March, he could then aim for a simple majority in a second vote on 5 March.
If he fails, the PP may attempt once again to form a coalition – perhaps a “grand coalition” with the Socialists and Ciudadanos.
If that fails, a new election would have to be called, probably on 26 June.