Prime Minister George Papandreou is due to unveil a new Cabinet on Thursday before seeking a vote of confidence from Parliament later in the week.
Following a day of speculation, Papandreou announced in a televised address late on Wednesday that he would reshuffle his Cabinet. He admitted that he had discussed the possibility of forming a coalition government with New Democracy.
The deal may have involved Papandreou stepping down but the premier said he pulled the offer off the table when the opposition party leaked details of the story.
New Democracy leader Antonis Samaras responded by blaming Papandreou for the talks collapsing. The ND leader demanded snap elections.
According to sources, the two leaders spoke three times on Wednesday. In the first phone call, Papandreou proposed forming a government of national unity. Samaras reportedly asked for a change of Cabinet and prime minister.
In the second call, Samaras added the demand that a date should be set for general elections. The third time the men spoke, Papandreou informed Samaras that he could not agree to his demands.
Sources told Kathimerini that Papandreou will form a Cabinet of 15 ministers that will probably include two or three non-political figures. Former European Central Bank vice president Lucas Papademos is one of those linked with a position in the new Cabinet.
Having announced a new Cabinet, Papandreou is then likely to seek a vote of confidence from Parliament on Sunday. Effectively, this means that he will be seeking the support of his own MPs as a mandate to continue with the austerity measures set out in the government?s medium term fiscal plan.
PASOK has 155 of the 300 seats in Parliament, having seen five of its MPs leave the party since it came to power in November 2009.