Spain’s centre-right party Ciudadanos (Citizens) has signed a deal with the Socialists, backing its leader Pedro Sanchez’s bid to be prime minister.
A five-point plan for constitutional reform is at the heart of the deal.
Mr Sanchez will now seek deputies’ support to become prime minister in a vote on 2 March – though the two parties’ seats combined still leave him far from a parliamentary majority.
Spain remains in political limbo following December’s inconclusive poll.
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 (PSOE) had been negotiating with the radical left Podemos, but on Tuesday declared they had come to an agreement with Ciudadanos. The deal was signed on Wednesday to applause.
Between them, the Socialists and Ciudadanos command only 130 seats in the 350-seat lower house.
“What we agreed we cannot do alone,” said Ciudadanos leader Albert Rivera, urging other parties to come on board.
Mr Sanchez will now put himself forward for a vote of confidence in the lower house of parliament on 2 March.
To succeed he would need an absolute majority, which 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.