The Likud party, citing what it called "excessive demands" from Yesh Atid, threatened to launch government coalition negotiations with the Charedi Orthodox parties.
The impasse with the Yesh Atid party prevented Prime Minister Benjamin Netanyahu from introducing his new government on Wednesday, as he had planned.
With Netanyahu having four days left to form a government, Yesh Atid head Yair Lapid reportedly has backtracked on agreements that he reached with the Likud leader throughout more than a month of coalition talks.
Jewish Home party Chairman Naftali Bennett, who has pledged to enter the government with Lapid or remain in the opposition, reportedly spent Tuesday night and early Wednesday trying to smooth things over between Bennett and Lapid.
The standoff reportedly centers on Lapid's demand that his party get the Education Ministry in addition to the Interior Ministry.
Among the coalition agreements already reached are significantly reducing the size of the Cabinet, raising the electoral threshold from 2 percent to 4 percent, drastic budget cuts and a haredi draft law.
If Netanyahu fails to form a government by Saturday night, Israeli President Shimon Peres can assign another politician to the task or the country could hold new elections.