Parties are discussing disagreements over funding

Sir Hayden Phillips, who published his review of party funding in March and is chairing the meeting, said there was "broad agreement" about most issues.

But recommendations on capping spending on campaigns and individual donations remained "obstacles", he said.

His review, which also backed a �25m-a-year rise in state funding, was aimed at restoring public confidence.

Spending cuts

Its recommendations included the largest parties cutting spending between elections by �20m each.

Prime Minister Tony Blair said in March that the report showed there was a "basis for a new agreement" on party funding, and said a deal would pave the way for legislation in the next parliamentary session.

Labour is concerned that a cap on individual donations would threaten its historic link with the trade unions, while the Tories are likely to oppose tough limits on spending at local constituency level.

Reaching agreement will, however, depend on the willingness of the parties to engage constructively with each other Sir Hayden Phillips Q&A: Party funding

Sir Hayden said he believed agreement can be reached on the two main issues through direct talks between parties.

"Reaching agreement will, however, depend on the willingness of the parties to engage constructively with each other in order to find a common outcome," he said.

"That will take some determination, and some compromise on all sides."

He added that involving only the three biggest parties appeared to be the only way of reaching an agreement on the issue, but he would remain in contact with other parties and seek their views where appropriate.

The review was commissioned by Mr Blair in March 2006, after it emerged that to fund their 2005 General Election campaign, Labour had been secretly loaned nearly �14m and the Conservatives �16m.