Congress president Sonia Gandhi on Tuesday decided not to become prime minister and indications are that Dr Manmohan Singh could head the new coalition government.
The development took place in the afternoon when Gandhi, who met President A P J Abdul Kalam in the morning, sent Congress members to leaders of allied parties, conveying her decision not to take up the post.
She will meet the President again on Wednesday.
The Congress Parliament Party's general body, which had elected her leader on Saturday, will meet in a short while to elect a new chief.
The allies were also told that her "decision was final" and that they should not insist upon her becoming PM. Her reluctance to take up the post was on account of her "deep hurt" caused by the Sangh Parivar campaign against her on her foreign origins.
Manmohan Singh, tipped to become the PM, met Dravida Munnetra Kazhagam chief M Karunanidhi to convey her decision.
Along with party leaders Arjun Singh and Ghulam Nabi Azad, he also met Communist Party of India-Marxist leader Harkishan Singh Surjeet and told him of Gandhi's decision.
Congress leaders Natwar Singh and M L Fotedar met Lok Janshakti Party chief Ram Vilas Paswan, while other party members informed Nationalist Congress Party leader Sharad Pawar.
The allies told the Congress leaders they would back any Congress nominee.