The election of a Taoiseach has now been postponed until Friday to allow parties more time to hammer out a coalition agreement.
The stalemate became inevitable when exploratory talks on Sunday night between the outgoing Taoiseach, Albert Reynolds, leader of Fianna Fail, and Labour's Dick Spring failed to yield any immediate alliance.
A Labour-Fianna Fail deal emerged as the most likely outcome after the centre-right Fine Gael and Progressive Democrat parties refused to enter any pact with Labour so long as it stuck to its joint programme with the formerly Marxist Democratic Left.
Labour's votes are essential for any coalition so long as the two largest parties founded on the Civil War rift, Fianna Fail and Fine Gael, continue to reject any mutual co-operation.
Labour still has reservations about joining a government under Mr Reynolds. The acrimonious break-up of his last coalition, along with his perceived compromises over women's health in the abortion debate, means Labour has little trust in him.
But his party last week yielded the most sympathetic response to Labour's policy programme, despite Fianna Fail's fierce attacks on it during the election campaign. Confirming the improved relations, Barry Desmond MEP, Labour's director of elections, said yesterday that 'the chemistry for a government deal' between the two parties had improved.
Earlier, Des O'Malley, leader of the Progressive Democrats, bitterly denounced Labour's concerted pressure for a left-leaning government. He said the electorate had not voted for a 'left' government. 'Anyone who believes that the election result justifies less than a quarter of this house taking an effective monopoly on the levers of power is engaging in self-delusion,' he said.
In the election for a Taoiseach, Mr Reynolds was defeated by 68 votes to 94; John Bruton, leader of Fine Gael, by 55 to 107; and Mr Spring by 39 to 122.
After handing in his formal resignation last night, Mr Reynolds insisted he would be premier in any Labour-Fianna Fail coalition, and would not accede to Mr Spring's pressure to secure the post or have it 'rotated'.