Uspaskich, a Russian newcomer, formed his party last year

The deal capped a week of talks, following inconclusive elections on 24 October in the Baltic state.

Labour's populist leader, Russian-born millionaire Viktor Uspaskich, has rejected speculation that he seeks to revive Moscow's influence in Lithuania.

Labour will now join a coalition with Social Democrats and Social Liberals.

The recently formed Labour Party won 39 seats in the 141-member parliament in the second and final round of parliamentary elections.

The governing Social Democrat and Social Liberal coalition gained 31 seats, while the right-wing Conservative and Liberal Centre Union parties together won 43.

But negotiations between left and right broke down over the coalition's call for Prime Minister Algirdas Brazauskas to stay on and get seven ministerial posts in the 13-member government.

The elections were the first to be held since Lithuania joined the European Union and Nato earlier this year.