There is reason to believe that a three-party government will steer a course that is less far away from the Progress Party than that of the sitting government

Progress Party leader Carl Hagen

Progress Party leader Carl Hagen told a news conference that his party would support the coalition government, with Christian People's Party head Kjell Magne Bondevik as prime minister.

The social democratic Labour Party, which has dominated Norwegian politics for nearly a century, is likely to hand over the reins to the coalition on Friday.

Correspondents say that while the Progress Party will not sit in government, it is set to exert a strong influence on government policy.

Public discontent

Prime Minister Jens Stoltenberg, whose party suffered its worst election defeat in nearly 80 years last month, was expected to inform parliament of his resignation on Wednesday.

He had hoped to muster up enough parliamentary support to stay in office.

Mr Bondevik has already been prime minister

Much was made of high taxation in the run-up to the election, and the poor state of public services in one of the world's richest nations.

Opposition parties argued that the government should use Norway's vast oil wealth to cut taxes and improve health and education.

The conservative coalition had promised to cut taxes by 25 billion crowns ($2.85bn) over four years and to step up privatisation.

Mr Hagen said the Progress Party had decided to back the coalition because of its promises to invest more in defence, open more private hospitals and pave the way for more competition in the public sector.

"The conclusion is that based on a total evaluation, there is reason to believe that a three-party government will steer a course that is less far away from the Progress Party than that of the sitting government," he said.