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Gordon Brown looks set to resign tonight and allow David Cameron to become Britain’s new Prime Minister after Labour talks with the Liberal Democrats collapsed. The Labour leader’s desperate bid to cling on to power fell apart after his own MPs responded with fury to the prospect of a Lib-Lab pact and there were clashes on policy with Nick Clegg. After five days of high drama following the election ending in a hung parliament, the deadlock appears to be almost over with the Tories on the verge of sweeping to power.

Mr Brown retreated to No.10 tonight where he is holed up with his closest aides, friends and wife Sarah for what is believed to be a farewell party. Luggage was also spotted being loaded into a Land Rover at the back of Downing Street.

Protocol dictates that he will have to go to Buckingham Palace to meet the Queen and formally resign. Royal sources said she had flown in at 3.30pm this afternoon.

It is likely Mr Cameron will go to the Palace within the next 24 hours to be formally installed as Prime Minister.

It is believed the Tories and Lib Dems have agreed the framework for a deal but this will need to be signed off by both parliamentary parties, which are due to meet tonight.

The agreement is thought to include a number of Cabinet positions for senior Lib Dems - as many as six - and a referendum on reforming Britain's voting system.

However, Mr Brown's resignation would mean a coalition is not necessary and he could go it alone to form a minority government.

David Cameron rushed to Portcullis House in the Commons as it emerged a deal could soon be delivered, insisting that he is still 'in the dark' about developments.

The Tories are on standby until 8pm so that they are ready to meet and give their agreement. Tory frontbencher Alan Duncan was confident it will back a deal: 'They’ll buy it, I’m sure they will.'

Nick Clegg is with his senior aides in Parliament. He will also have to try to sell any deal to his party and the Lib Dem federal executive, who are gathering for a joint meeting at 7.30pm.

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In limbo: Gordon Brown leaving Downing Street from the back today as he went to the Commons

Today's dramatic developments represent a humiliating defeat for Labour after Lord Mandelson and Alastair Campbell's desperate last minute bid to keep the party in power.

Their attempt to form a stitch-up with the Lib Dems backfired after it prompted a furious internal backlash from Labour MPs, with some complaining they were being treated 'like sheep'.

Recriminations over the failure to retain power are likely to dominate the campaign to install a new leader in the coming months.

It also completes a dramatic fall from grace for Mr Brown, who could now also quit as an MP and leave politics for good.

In farcical scenes in Whitehall, the Lib Dem negotiating team had earlier walked straight out of a meeting with their Labour counterparts and into face-to-face talks with their Tory rivals.

The developments came after a string of Cabinet ministers opposed to a Lib-Lab pact joined party heavyweights in warning that it was vital to respect the public vote and accept going into opposition.

Andy Burnham was the first to openly talk down a deal this afternoon and Jack Straw was said to be 'incensed' at the idea, with suggestions he could quit the Cabinet if it went ahead.

Mr Burnham had praised David Blunkett for warning a pact would be disastrous and insisted: 'I think we have got to respect the results of the general election and we can't get away from the fact that Labour didn't win.'

A grassroots rebellion among MPs who believe the party would be better going into opposition and regrouping appears to be growing, with a group of critics due to meet in the Commons later today.

The Lib Dems were also believed to have grave concerns that Labour cannot deliver on its promises because a Lib-Lab alliance would be a minority government given their share of the votes.

There was scepticism that it would be able to follow up on its promise of changing the electoral system to Alternative Vote without holding a referendum because of opposition from its own MPs.

Home Secretary Alan Johnson, another potential runner for the Labour leadership, had warned that the people must be given the chance to decide on any electoral reforms.

One senior Lib Dem said it was important that the Lib Dems were seen to 'explore all the options' but claimed talks had now reached the endgame, with the Tories likely to win out.

'We are on an island with the Tories, but some people hope a lifeboat driven by Ed Balls is going to come along. What they don't realise is that lifeboat is going in the wrong direction and it's sinking,' he said.

Labour and Lib Dem negotiating teams had met for three hours in the Commons this morning in an attempt to iron out a deal in the wake of Gordon Brown's shock resignation last night.

At the same time, David Cameron and Nick Clegg held a secret, 45-minute meeting in Parliament. Mr Brown also visited Parliament at lunchtime to meet senior Labour figures to see how talks were going.

Ed Miliband, one of the negotiators, described the Lib-Lab discussions as 'good' and 'constructive' but shortly after 2pm, the Lib Dems were back with the Tories at the Cabinet Office.

There, William Hague declared the Tories had already made their offer after last night agreeing to a referendum on the Alternative Vote system and declared: 'We have come here to hear the Lib Dems' response.'

Back in favour? Tory negotiators Oliver Letwin, William Hague and George Osborne head for the Cabinet Office

Despite a backlash against Lib Dem double-dealing, party grandee Simon Hughes signalled it would risk sparking further fury by pushing for more concessions in other policy areas.

He suggested a 'secure arrangement' could be in place 'within a matter of days, if not today' depending on how the talks progress this afternoon.

Mr Hughes, a key figure in the party, had declared before talks with Labour that they too would 'need to think further and go further before there will be any prospect of any arrangement with them.'

Mr Clegg is due to address his party again for the second time in 24 hours later today but his MPs already concerned Labour is more worried about its own leadership wranglings than any 'progressive alliance'.

David Cameron is being forced to look on as his hopes of becoming Prime Minister - or even staying as Tory leader if events go against him - hang in the balance.

As he left home this morning, he urged Mr Clegg to make the 'right decision', saying that his 'over-riding concern' was for a 'good, strong, stable government that is in the national interest'.

'I've made a very full, very open, very reasonable offer to the Liberal Democrats to deliver that stable government. My own Members of Parliament have shown that they are prepared to put aside party interest in the national interest by agreeing a referendum on the Alternative Vote,' he said.

'It's now, I believe, decision time - decision time for the Liberal Democrats - and I hope they make the right decision to give this country the strong, stable government that it badly needs and it badly needs quickly.'

Mr Clegg insisted he is as 'impatient as anyone' to make progress and said he was working towards an announcement as 'quickly as possible'.

'We will act, as ever, responsibly. We will act to try and do our bit to create a stable, good government the British people deserve,' he said.

'I really hope we will be able to make an announcement so we can clean up everything and explain to people exactly what our thinking is as quickly as we possibly can.'

Hopeful: David Cameron leaving home this morning... but the thumbs up was only a signal to his driver

The time is now: Nick Clegg outside his home today as he contemplates who to support

The Tories have already made clear their offer of a referendum on an Alternative Vote system is final and they will go no further to woo Mr Clegg and his party.

An alternative Lib-Lab pact would see the Lib Dems signing up without even knowing who would be Prime Minister in a few months' time once Gordon Brown steps down.

The Government would be distracted by a protracted leadership contest just when it vitally needs to make crucial decisions about the public finances.

It could also see England, where the Tories have a huge majority, being forced to pay the price as Scottish and Welsh Nationalists hold the key to whether the flimsy government stands or falls.

Lord Mandelson, who with Alastair Campbell was behind the jaw-dropping plot that saw Gordon Brown quit to try and pave the way for a Lib-Lab deal, is leading talks for the Government.

He was joined by likely leadership candidate and Schools Secretary Ed Balls, deputy Labour leader Harriet Harman, Transport Secretary and ex-Lib Dem Lord Adonis and Energy Secretary Ed Miliband.

Mr Balls, on his way into the talks, said: 'We need to take the time to get it right and I am very clear my job is to be there with the whole negotiating team to make sure we protect our manifesto, but also the country needs a stable government.

'There are some areas of agreement but also some difficult issues. Everybody wants to do this as soon as we possibly can.'

Talks: Lord Mandelson, Ed Balls, Lord Adonis, Ed Miliband and Harriet Harman head to the Commons for negotiations with the Lib Dems

Plotters: Lord Mandelson going to Lib-Lab talks this morning and (right) Alistair Campbell playing football today

The summit came after Labour's old guard openly condemned any kind of stitch-up, arguing it will be regarded with disgust by the public and that the party would be better off going into opposition.

David Blunkett said: 'I don't believe it [a Lib-Lab pact] will bring stability, I believe it will lead to a lack of legitimacy, and I think the British people will feel that we have not heard what they said to us...

'If we continue not listening then we will lose very badly at any subsequent general election. That would be even worse than a situation where we have a minority government in which we check what they do, whilst acting responsibly in the interests of the nation.

Watching and waiting: Samantha Cameron leaving home today

'A coalition of the defeated cobbled together, uncertain whether it can carry anything night by night, people, as they did when I first came to Parliament, dying on average about once every three months because of the nature of the sittings, and a then general election on the back of that - you don't have to be involved in politics to see what that would do to the Labour Party and its vote.'

He added: 'Can we really trust these people? Can we really trust the Lib Dems? They are behaving like every harlot in history.'

Fellow former home secretary John Reid warned that a 'rainbow coalition' would not give Britain the stable government it desperately needs to face the huge challenges ahead.

'I fail to see how trying to bring together six different parties - and even then not having a majority - will bring the degree of stability we need. If we take that decision, which most people will regard as not bringing stability, then it may be perceived as acting in our own self-interest. The public aren't daft,' he said.

'Don't forget we have just had the biggest loss of seats in Labour's history. If we are perceived to be responding to that by ignoring it and by trying to cobble something together that patently isn't in the national interest then we will face the same thing in the future.'

Mr Reid has already warned parties from Scotland, Wales and Northern Ireland would demand to be shielded from spending cuts as the price of any deal - leaving the English taxpayer to foot the bill.

Tory grandees also condemned a potential Lib-Lab deal. Former foreign secretary Lord Hurd said it was 'shabby, shameful and unfair' and warned Britain was 'on the edge of a crisis'.

Former minister Lord Heseltine branded it 'party politics at its most sordid'. 'This is mind blowing. I don’t know how anyone would have such a barefaced nerve as to put such a proposition in the circumstances. The only viable solution is for David Cameron to become the prime minister,' he said.

Boris Johnson, the Tory Mayor of London, described the developments as an 'absolutely spectacular and scandalous' example of what would happen in a system of proportional representation.

He claimed the approach leads to 'ludicrous skulduggery and cloak-and-dagger assignations' rather than open and clear discussion.

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