Greece's radical leftist Syriza party on Tuesday was given the mandate to start building an anti-austerity cabinet and prevent fresh elections, a day after the conservatives failed to form a coalition.
Syriza leader Alexis Tsipras met for talks with Greek President Carolos Papoulias who formally tasked him with forming a government.
"I called you to give you the Greek mandate to form a government," Papoulias said.
Arriving for the talks on foot and wearing a grey suit, white shirt and no tie, Tsipras said it was a "historic moment" for the left and a "great responsibility" for himself, state television NET reported.
Tsipras, 37, has said he would use the three-day mandate to pull together a cabinet that will reject "barbaric" austerity measures imposed on debt-laden Greece as part of an EU-IMF bailout deal.
"We will exhaust all possibilities to reach an understanding, primarily with the forces of the left," said Tsipras, whose far-left party came second in Sunday's elections as Greeks routed pro-austerity parties.
Tsipras was expected to hold talks later on Tuesday with Communist leader Aleka Papariga -- who is unlikely to cooperate -- and Fotis Kouvelis, head of the smaller Democratic Left party that is mostly composed of former Syriza cadres and lawmakers.
He will also see former socialist minister Louka Katseli, who formed a splinter party in March after opposing the latest round of austerity cuts.
Syriza spokesman Panos Skourletis said the party would reject the EU-IMF deal and seek an understanding with Greece's EU peers on making the country's huge debt sustainable.
"We need to find a European solution on the debt after setting the (loan agreement) aside," he told Flash Radio.
A new government has to be formed by May 17 or new elections will be called.
The verdict in Greece has alarmed markets and many analysts have warned that the country's economic crisis is far from over.
The Athens stock exchange was losing 1.69 per cent in midday trading after shedding another 6.67 per cent on Monday. French shares also fell by 2.02 per cent.
And Greece's cost of borrowing jumped on Tuesday as it sought to raise 1.3 billion euros ($1.7 billionj) in a sale of six-month treasury bills.
It offered a return of 4.69 per cent to investors, up from 4.55 per cent at the last equivalent sale on April 10.
Communist party KKE on Tuesday said it would not cooperate in any coalition government.
"KKE will not back any government composition," the party said through its mouthpiece daily Rizospastis.
Even assuming that Syriza and other anti-bailout parties could overcome their gaping differences, they can only muster 151 votes, enough for just a razor-thin majority in parliament.
"Everything points to new elections in June," said the pro-conservative Eleftheros Typos daily.
However, some constitutional experts have argued that a government could conditionally be formed with just 120 lawmakers depending on the number of deputies present on the day of the confidence vote in parliament.
The only option, noted pro-socialist Ethnos daily, is for Syriza and the smaller Democratic Left party to settle on a joint candidate for prime minister which the third-seeded socialist Pasok party could support.
Ethnos argued that after two years of riding anti-austerity anger, Tsipras had not expected to be thrust into a position of responsibility so soon.
"Tsipras justifiably expected a rise in Syriza ratings but not to the point of becoming the catalyst in developments," the daily said.
The political developments in Greece and also France had stoked anxiety about the fate of the EU's tough fiscal pact adopted in March to try to end the eurozone's crippling debt crisis.
German Chancellor Angela Merkel, the chief proponent of austerity as the main way out of the eurozone crisis, said Monday it was "of utmost importance" that Greece stuck to its reform path, while conceding this was "difficult".
A European Commission spokeswoman said Brussels "hopes and expects that the future government of Greece will respect the engagements that Greece has entered into."
The country, in its fifth year of recession with unemployment at 20 per cent, is committed to finding in June another 11.5 billion euros ($15 billion) in savings over the next two years.
New Democracy and Pasok, the two main parties that have alternated in power since 1974, saw their share of the vote collapse to just over 32 per cent on Sunday from 77.4 per cent at the last election.
This left the two parties, which favour sticking to the bailout but with easier terms, with 149 MPs in the 300-seat parliament, insufficient for a re-run of the outgoing coalition led by technocrat premier Lucas Papademos.
Syriza tallied 52 seats, relegating Pasok to third place with 41 seats.
The other parties included the neo-Nazi Golden Dawn with 21 seats, the right-wing Independent Greeks with 33 MPs and the KKE with 26.
Berenberg Bank economist Holger Schmieding warned that "Europe could turn off the flow of support funds and thus force Greece to leave the euro".
Economist Guillaume Menuet of Citi said there was "significant potential" for Greece to miss its next round of targets and a 50-to-75-per cent chance of what he called a "Grexit" within 12-18 months.