London, England (CNN) -- British Prime Minister Gordon Brown said Monday he will step down as leader of his party after it was defeated in parliamentary elections last week.
"As leader of my party I must accept that that is a judgment on me," he said.
He is asking his Labour Party to begin preparations for a new leadership contest in which he will not be a candidate, he said. That effectively means he is on his way out as prime minister.
He said he hoped a new leader would be in place by the next party conference, which is scheduled for September.
The move may clear the way for a deal to keep his party in power after elections last week left no party with an absolute majority in parliament.
Brown said a Labour-Liberal Democrat alliance made sense, given the results of Thursday's vote.
"There is a progressive majority in Britain and it would be in the interest of the whole country to form a progressive coalition government," he said.
The Conservative Party won the most seats, after 13 years in opposition, but not enough to form a government on their own.
Brown's Labour Party came in second, and the Liberal Democrats came in third.
The Liberal Democrats are in talks with the Conservatives, but Brown said they had now asked for talks with Labour as well.
The Liberal Democrats refused to confirm to CNN that their leader, Nick Clegg, had made a request to Labour.
But a top party member indicated Monday that there were areas where the Liberal Democrats and Conservatives had not reached agreement after discussions through the weekend.
The two parties have not yet agreed on "education funding, fair taxes, and on issues in relation to voting reform," Liberal Democrat lawmaker David Laws said after newly elected Lib Dem members of parliament huddled to discuss the negotiations.
The Lib Dems also "agreed to continue to listen to the representations that are coming from the leader of the Labour Party," Gordon Brown, Laws said.
A Conservative-Liberal Democrat coalition would command a clear majority of seats in the House of Commons, but there are wide gulfs between the two parties on many policies.
It's not clear if the Conservatives and Liberal Democrats are discussing a formal coalition or Liberal Democrat support for a minority Conservative government.
Labour and the Liberal Democrats have more in common, but a coalition between them would fall just short of a majority in the Commons. A handful of lawmakers from smaller parties might be able to push a Labour-Liberal-Democrat coalition over the top.
It's extremely rare for no one party to win a majority in the House of Commons. The last time the country had a so-called "hung parliament" was in 1974, and voters were back at the polls within a year of that happening.
Electoral reform is a key issue for the Liberal Democrats, who say the current electoral system is unfair and leaves them under-represented in Parliament.
Because of the country's "first-past-the-post" electoral system, for example, the Conservatives got 36 percent of the vote, but a total of 306 of the 650 seats in Parliament.
Under proportional representation, they would have gotten 234 seats.
Labour is expected to have 258 seats with 29 percent of the vote.
But the Liberal Democrats' 23 percent of the popular vote amounted to 57 seats -- little more than a third of the roughly 150 they would have won with proportional representation.
It's unclear how far Conservative Party leader David Cameron will go on electoral reform. But he said in an e-mail to party members that he is willing to compromise on some issues.
"There are also areas where I believe we in the Conservative Party can give ground," he wrote, "both in the national interest and in the interests of forging an open and trusting partnership. For example, we want to work with the Liberal Democrats to see how we can afford to reduce taxes on the lowest paid."
Parties smaller than the Liberal Democrats hold too few seats in Parliament for them to be realistic choices for the Conservatives, analysts have said.
The last time Britain had a hung parliament was in February 1974, when Edward Heath's Conservatives gained more votes but fewer seats in Parliament than Labour.
The Conservatives proved unable to form a deal with the Liberal Party, and voters found themselves back at the polls by October.