By Anna Ringstrom and Simon Johnson
STOCKHOLM (Reuters) -Swedish Prime Minister Stefan Lofven's hopes of surviving a political crisis looked slightly brighter on Wednesday after his allies in the Centre Party said they would drop a contested proposal for rent reform.
Lofven has led a fragile centre-left minority government of Social Democrats and Greens, supported by former political rivals the Centre Party and the Liberals, since 2018, but lost a vote of no-confidence in parliament on Monday.
The Centre and Liberals have pushed for rental reform, but the Left Party, whose support Lofven also needs, is against and withdrew its support over the plan.
The vote meant the prime minister had a week to resign, find the votes he needs to form a new government, or call a snap election.
However, the Centre Party said on Wednesday the plan for rental reform did not have majority backing and was therefore "not on the table anymore".
Party leader Annie Loof said she was open to renegotiating a formal policy deal with Lofven, dubbed the January Agreement, that has kept him in power until now.
"Now the Centre Party wants to see a new January Agreement which would cover the rest of the mandate period and give Sweden a government again," Loof said in a statement.
Dropping the proposal could bring the Left Party back behind Lofven, but time is running out.
"Lofven probably needs to have some kind of basis for a government wrapped up before Monday in order to avoid an snap election," Jonas Hinnfors, professor of political science at Gothenburg University, said.
Opinion polls show the centre-left and centre-right blocs evenly balanced and an election might not end the current political stalemate.
'DIFFICULT' SITUATION
Left Party leader Nooshi Dadgostar said this week her party wanted Lofven back as prime minister, but without the plan to ease rent controls. In a text to Reuters she did not say whether her party now stood behind Lofven again.
The former welder and head of the Social Democrats secured a second term as premier in 2018 after months of negotiations following an election that saw the anti-immigration Sweden Democrats make big gains.
The rise of the Sweden Democrats, who entered parliament first in 2010, has split the centre-right and made forming any government complicated.
Lofven has spent the last three years trying to balance a business-friendly, centre-right policy agenda with the need to keep the Left Party - formerly the communist party - from jumping ship, a task that unravelled over easing rental market regulations.
Lofven on Wednesday welcomed the Centre Party's decision to abandon rent reform.
"It is important that more parties now do what is best for the country," he said in a text to Reuters.
Even if the Left Party drops its opposition to the government, Lofven still needs support from the Liberal Party, which abstained in the vote of no-confidence, to form a viable government.
Liberal Party spokesman Mats Persons said the party sought a liberal, right-of-centre government. "That is the best for Sweden."
A spokesperson for Lofven said that his Social Democrat party was holding discussions "on a broad front", but gave no further details.
Sweden is due to hold a regular election in September 2022.