By Padraic Halpin
DUBLIN (Reuters) - Ireland's second-largest party rejected an offer of a coalition with that of acting Prime Minister Enda Kenny on Thursday less than 24 hours after the unprecedented proposal was made, a senior party member told Reuters.
Kenny made the offer on behalf of his Fine Gael party on Wednesday evening during his first meeting with the leader of rival party Fianna Fail since inconclusive elections on Feb. 26.
The rejection leaves the country facing an unstable minority led by government led by either Kenny's Fine Gael or Fianna Fail, or a new election.
"A sizeable majority has rejected the proposal that has been put by the Taoiseach (prime minister), we have been engaged with independents to try to provide an alternative government and that still remains our focus," Fianna Fail frontbench member Robert Troy said after a meeting of parliamentary members.
"At this stage the independents are going to have to make a decision. If it's a case that Fine Gael do secure a majority of the independents, then we will have to look at talking to Fine Gael in the context of supporting a minority Fine Gael administration. But a coalition is out."
Another party member earlier dismissed the idea of giving up principles for the sake of "Mercs and perks", a reference to ministerial Mercedes-Benz cars.
But by rejecting the deal, the party risks being blamed for putting its ambitions ahead of the country's interests if a new election is called.
Fianna Fail and Kenny's Fine Gael are both center-right parties with few policy differences but have been bitter rivals for decades.
Ireland's central bank has said the impasse has so far had little effect on Europe's fastest-growing economy but warned it could have an adverse impact. Data on Wednesday showed consumer sentiment posted its sharpest fall in 17 months in March.
"We're unsurprised to see several Fianna Fail politicians have already publicly come out against a deal – as in many other jurisdictions, electoral arithmetic trumps policy cohesion," stockbrokers Investec said in a note.
Acting health minister Leo Varadkar Fine Gael said he would have "great concerns" about the possibility of a minority government of Fine Gael and independent members of parliaments that would depend on Fianna Fail's consent to govern.
He also said he could not rule out a new election as there was a limit to how long the country can continue without a full government.
(Writing by Conor Humphries; Editing by Jeremy Gaunt)