Senior party figures yesterday urged Mr Brown to face up to the reality of the election result and stand down as soon as possible to enable the party to rebuild in opposition.
He could use a meeting of the party's ruling National Executive Committee to announce that he will stand down. Harriet Harman, the deputy Labour leader, would take over as interim leader.
Last night allies of Ed Miliband, the Energy and Climate Change Secretary, refused to deny reports that he would stand for the leadership — even though his older brother, David, is also a likely contender for the post. Other likely candidates are Ed Balls, Alan Johnson and Ms Harman herself.
While the focus is on the formal Tory-Liberal Democrat talks, informal contacts were being maintained over the weekend between Labour and Nick Clegg's party through “back channels”.
Ministers insist they have far more common ground with the Liberal Democrats — notably over electoral reform and reviving the economy — than the Tories have.
Several ministers believe that Mr Brown's continuing presence in Downing Street is undermining the party's fading chances of negotiating a deal with the Liberal Democrats.
Mr Brown, who remains Prime Minister, met ministers and Labour officials to discuss the party's next steps. They included Lord Mandelson, the Business Secretary, Ms Harman, Ed Miliband, author of the Labour manifesto, and Alastair Campbell, Tony Blair's former press secretary.
Despite the apparent progress between the Tories and Liberal Democrats, Labour is keeping alive the prospect of an anti-Tory “progressive alliance”, including Scottish and Welsh nationalists, as well as Northern Ireland MPs.
Labour says Mr Brown is ready to negotiate with Mr Clegg if his talks with David Cameron collapse, offering him immediate legislation to hold a referendum on changing the voting system.
However, they acknowledge that his presence at the table could prove a stumbling block for Mr Clegg, who has made clear he would not prop up Mr Brown as Prime Minister.
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