Spain's conservative Popular Party has signed a deal with the business-friendly Ciudadanos party that could allow the formation of a new government and avert a possible third round of elections.

The parties signed a package of conditions set by Ciudadanos on Friday, a day after Parliament announced that Popular Party leader and acting premier Mariano Rajoy will put his candidacy to form a new government to a first vote on Aug. 31.

If the situation remains deadlocked two months after that vote, Spain would have to hold fresh elections on Dec. 25.

So far, Rajoy's effort to muster enough votes from lawmakers to end eight months of political deadlock following two inconclusive elections have been unsuccessful, as most other parties have pledged to vote him down.