Liberal party leader Kaja Kallas, on track to become Estonia's first female prime minister, announced talks for a grand coalition Wednesday with the centre-left party of outgoing prime minister Juri Ratas.
Her Reform party had agreed that they could form a stable government with the Rastas's Centre Party, Kallas said in an official statement.
Ratas said Wednesday on Facebook that his party leadership would decide its position following talks in the evening.
Reform and Centre are Estonia's two establishment parties. Together, they could command a solid majority, with 60 members between them in the 101-seat parliament.
Kallas, a 41-year-old lawyer and former member of the European Parliament, has identified taxation, citizenship and education as sticking points in the talks.
Ratas's Centre Party wants to see a progressive tax system and to keep Russian-language instruction in schools, neither of which the liberals support.
Kallas wooed voters in the Baltic state of 1.3 million with business-friendly promises of cutting taxes and unemployment insurance premiums to help job creation.
Bread-and-butter issues such as taxation and public spending dominated Sunday's election in the ex-Soviet EU and NATO state, along with tensions over Russian-language education for the sizeable Russian minority and the rural-urban divide.
Centre and Reform have alternated in government over the nearly three decades since Estonia broke free from the crumbling Soviet Union.
Both strongly support Estonia's EU and NATO membership, which they see as a buffer against Soviet-era master Russia. Both favoured austerity to keep spending in check, giving the country the eurozone's lowest debt-to-GDP ratio.
Experts see the surge in support for the far-right EKRE party, which doubled its support to become the third largest party with 19 seats, as part of a backlash against tight public spending, which hit rural Estonians the hardest.
Under the constitution, Premier Ratas must resign at the first sitting of the new parliament. President Kersti Kaljulaid then has 14 days to name a candidate for prime minister, with Kallas expected to get the nod.
Kallas is the daughter of Siim Kallas, a former European Commissioner, Reform party leader and premier.
Kaja Kallas's Reform Party won the most seats in the new parliament
The far-right EKRE party has more than doubled its presence in parliament