© ReutersGreek President Papoulias holds a meeting with PM Papandreou and leader of conservative New Democracy party Samaras in Athens
European leaders forced George Papendreou to act under the threat of national bankruptcy.
An agreement in principle was reached between Mr Papandreou and Antonis Samaras, the conservative opposition, leader after an hour and a half meeting with the president on Sunday night.
The two men will meet on Monday to decide on the composition of the new government, which will take office after Mr Papandreou formally tenders his resignation. A presidency statement said they will discuss who would head the coalition government, but that Papandreou would not lead the new administration.
"Tomorrow there will be new communication between the prime minister and the opposition leader on who will be the leader of the new government," the statement said.
The statement made no mention of how long the interim government would last.
The European Union gave Greece 24 hours on Sunday to explain how it will form a unity government to enact a bailout agreement.
Mr Papandreou and his opponents have been scrambling to hammer out a deal ahead of a meeting by finance ministers of euro countries on Monday, to show that Greece is serious about taking steps needed to stave off bankruptcy.
The interim government is expected to be in place for about three to four months in order to ensure a new European debt deal and secure a vital installment of bailout loans that Greece needs to avoid default.
The initial agreement came after a week of intense political drama sparked by Mr Papandreou's announcement he was taking the debt deal to a referendum.
He withdrew the plan on Thursday after intense opposition from European leaders and MPs.
"The European Union gave Greece 24 hours on Sunday to explain how it will form a unity government to enact a bailout agreement."
"The EU gave Greece 24 hours to form a dictatorship to enact out a steal from the people agreement"