Israeli Prime Minister Benjamin Netanyahu will decide before parliament reconvenes on October 15 on whether to seek a snap election, a government official said on Friday.
Citing growing friction among Netanyahu's allies, including disputes with Defence Minister Ehud Barak, Israeli media has said elections might be held in February, eight months ahead of schedule.
The official, who spoke to Reuters on condition of anonymity, said Netanyahu would make a decision before the middle of the month on whether to dissolve the reconvened parliament or get ministers to agree to austerity measures for next year's budget.
"If it's possible to agree to another responsible budget he (Netanyahu) prefers that. But if due to the political situation this proves not to be feasible, then he will choose an early election," the official said.
Netanyahu heads the right-wing Likud party and presides over a five-party coalition government, which controls 66 seats in the 120-seat parliament.
Slower-than-expected economic growth means the government will have to tighten its belt in the 2013 budget and many coalition allies appear reluctant to sign up to austerity measures just months before elections are due.
Finance Minister Yuval Steinitz said last month that next year's budget would need 14 billion shekels ($3.6 billion) worth of cuts in order to reach a deficit target equal to three percent of gross domestic produce.
If no budget is approved for next year, spending controls immediately kick in to keep state finances steady until a new government is ready to act.
Netanyahu's ultra-Orthodox religious parties have been hesitant to agree to proposed cuts and Barak has also balked at demands to rein in defence spending.
Opinion polls have suggested Likud will come out on top of a national ballot, giving Netanyahu a renewed mandate to tackle what he has described as the most important challenge facing Israel - the prospect of a nuclear-armed Iran.
However, the same polls have indicated that Barak's own small group, the Independence Party, might struggle to regain any seats in the next Knesset.
Relations between Netanyahu and Barak, long-time allies since serving together in the Israeli military, have frayed over the prime minister's efforts to push Washington to set a limit for Iranian nuclear development.
Writing by Allyn Fisher-Ilan