The "outline" of a deal between the U.K. Conservative Party and Liberal Democrats to form a new government was agreed, according to Sky News sources Monday.
Earlier Monday, negotiators from both political parties said there was "further progress" in talks.
Outside the U.K. Cabinet Office in central London, Conservative leader David Cameron's deputy William Hague said: "We have made further progress in our meeting with the Liberal Democrats this morning.
"On our part, we will report back to David Cameron again and have meetings with parliamentary colleagues ... The negotiating teams are working really well together."
His words were echoed by Lib Dem leader Nick Clegg's chief of staff Danny Alexander, who said, "We are working well together."
The talks were sparked after Britain woke up to its first hung parliament since 1974 after the May 6 national election. The Conservatives won more seats than Prime Minister Gordon Brown's Labour Party and the Liberal Democrats but fell short of securing a parliamentary majority, meaning it must rely on outside support to form a government.
Earlier Monday, Sky News sources revealed Clegg and Cameron took part in a "positive and constructive" 30-minute telephone conversation in the morning.
Speaking as he left his London home, Clegg said: "We are working around the clock to try and act upon the decision of the British people in last Thursday's election results.
"I do not think a period of uncertainty is a good thing. I want to arrive at a decision as soon as possible ... but it must be the right decision."
In an attempt to calm jittery financial markets, Clegg and Cameron joined forces Sunday to put the economy and the reduction of Britain's record £163 billion ($244 billion) deficit at the heart of their negotiations.
Sunday night, the pair held their second face-to-face talks in the space of 24 hours.
It followed a marathon session, lasting nearly seven hours, between the Conservative and Lib Dem negotiating teams.
Cameron faces a potentially tricky meeting with his party's Members of Parliament on Monday night at Westminster as he addresses them on the discussions.
But even as the two parties edged closer to an agreement, it appeared that Brown was not giving up hopes of retaining his grip on power.
It emerged Monday that the Labour Party leader slipped out of the prime minister's official Downing Street residence for a meeting with Clegg.
Both sides played down the significance of the talks, describing them as "amicable," but stressed that the two men were simply updating each other on the situation.