Conservative and Liberal Democrat negotiating teams are to meet again today following more than five and a half hours of discussions in Whitehall, it was announced last night.
Shadow foreign secretary William Hague emerged from the Cabinet Office to say that they would be briefing their respective leaders on what he described as "very positive and productive" negotiations.
As the meeting broke up Conservative sources disclosed that David Cameron had spoken again by telephone to Nick Clegg following their 70-minute face-to-face talks on Saturday night in Whitehall.
Mr Hague told reporters that the two negotiating teams - which are discussing possible terms of co-operation in forming a new government - had had a wide-ranging policy discussion.
"We've had some very positive and productive discussions over many key policy areas," he said.
"The issues we have covered have included political reform, economic issues and the reduction of the deficit, banking reform, civil liberties, environmental issues.
"So we've had good discussions about all of those areas. We intend to meet again over the next 24 hours. We are agreed that a central part of any agreement that we make will be economic stability and a reduction of the budget deficit.
"Each negotiating team is now going to report to our party leaders."
Mr Clegg's chief of staff Danny Alexander emerged a few minutes later, to confirm that they had agreed to have further discussions.
"We're agreed that whatever any agreement made will have deficit reduction and economic stability at its heart," he said.
While the negotiating teams were meeting it emerged that Mr Clegg met Gordon Brown in the Foreign Office.
Labour and Lib Dem sources said that the meeting followed a telephone call between the two men on Saturday night and was intended to update each other on the situation.
Both sides described the discussion as "amicable".
It was unclear from the statements whether the Tory-Lib Dem discussions were proceeding on the basis on a full coalition, with Lib Dem ministers sitting around the Cabinet table or some more limited form of cooperation.
Both sides face potential difficulties in selling a deal to their own supporters amid a long history of distrust between the two parties.
Mr Cameron - who will address the Conservative backbench 1922 Committee today - was holding an "open office" in his rooms in the Commons for Tory MPs and shadow cabinet ministers in an attempt to address their concerns.
Earlier the senior backbencher Graham Brady, who is tipped to be the new chairman of the 1922, warned that there was little enthusiasm among Tory MPs for a full-blown coalition deal with the Lib Dems.