Austria's Chancellor Wolfgang Schuessel is holding talks with the country's President Thomas Klestil to discuss the formation of a new coalition government.

It follows the success of his conservative People's Party in Sunday's general election, which made sweeping gains but without gaining an overall majority.

The far-right Freedom Party, formerly led by Joerg Haider, suffered a crushing defeat, losing two-thirds of its former supporters, but could still be invited by Mr Schuessel to form part of the government.

"We want to hold frank talks with all three parties. Nothing has been prearranged," the chancellor told Austrian television after his party scored its best result in two decades.

But the Social Democrats, who came second with 36.9%, appeared to dismiss a revival of the centre-left alliance which ruled Austria for much of the post-war period until 2000.

"At the end of the day, the Social Democrats will be in opposition," party leader Alfred Gusenbauer said.

Different directions

Mr Schuessel said his party would offer "really trusting co-operation with all three parties".

"We want to see how we can implement as much as possible of our reform course."

Haider's Freedom Party lost two-thirds of its former supporters

His last coalition with the Freedom Party caused an outcry in Europe when it first took office nearly three years ago, because of Mr Haider's extreme right, anti-EU views.

However, analysts say the weakness of Mr Haider's far-right party could make them an attractive partner for Mr Schuessel, since he would be able to dominate any coalition.

Negotiations on the new government are expected to take weeks.

Sunday's election was held a year early, following the collapse of the coalition between the Freedom Party and the People's Party.

During their three years in government, the People's Party shifted sharply to the right, while the Social Democrats moved to the left.