Stephen spoils the party for Salmond as he says: It's no deal

Mr Salmond said he could not accept preconditions ahead of any talks, particularly on the referendum, as it was central to the SNP's agenda for government.

After the conversation, Mr Stephen issued a statement making it clear there would be no further talks and that there was no current prospect of an SNP- Lib Dem coalition.

He said: "I have had discussions with Alex Salmond, leader of the SNP, and made it clear to him that, unless and until the SNP removes the fundamental barrier of a referendum on independence during the next four years, there can be no coalition.

"We consistently stated to people across Scotland at all times during the campaign that this was our position and it will not change. Under these circumstances, it seems likely there will be a minority SNP government.

"The Scottish Liberal Democrats will work constructively to promote our positive policies in the new parliament."

Mr Stephen's flat rejection of any sort of deal with the SNP represents a crushing blow to Mr Salmond's plans to win credibility through stable government over the next four years.

He knows it will be incredibly difficult to run the Executive without a majority. The SNP leader has managed to persuade the Greens, in principle, to join an SNP-led administration but the Greens have only two MSPs.

Together, the SNP and the Greens can muster 49 Holyrood votes - 16 short of a majority.

An SNP spokesman tried to rescue something positive from last night's conversation between the leaders, saying Mr Salmond hoped the Lib Dems would "soften" their position in the next few days. "Alex is still hopeful he will get them round the table. It would be beneficial for parties to at least talk.

"We are talking to the Greens and we believe it would be beneficial for those talks to include the Liberal Democrats. They may be still sore at this stage from the election result - their position may soften over the next few days," he said.

A Lib Dem spokesman said it was likely his party would go into opposition and would be unlikely to consider propping up an SNP-led administration in a continental-style "confidence and supply" deal.

That would mean the Lib Dems supporting the government on an issue-by-issue basis, but even that seems too much for them to contemplate.

The Lib Dems also flatly rejected the prospect of working with Labour to form a government. There is a feeling that it would be wrong politically to support a party so clearly on the way down and wrong morally to prop up the party that had failed to win the election.

Asked on BBC TV's Politics Show yesterday if he was ruling out a coalition deal with Labour, Tavish Scott, the Lib Dem campaign manager, replied: "Yes."

When it was then suggested that his party would either do a deal with the SNP or go to the back-benches, Mr Scott said: "That's absolutely the position."

His rejection of any deal with Labour will come as a blow to Jack McConnell, who was still holding out hope yesterday of some sort of unionist alliance to keep the Nationalists away from power and allowing him to remain First Minister.

The Labour leader said he would not be resigning, for a month at least, in case there was a chance of him returning to head the government.

Much of the Lib Dem intransigence comes from a feeling within the new parliamentary group that the party needs some time away from office. It had a poor election and some MSPs think this was partly because it had become too associated with Labour over the past eight years in power. They believe the Lib Dems need to spend some time in opposition, regrouping, reassessing and finding their distinctive identity again.

Last night's phone call was the weekend's third between the SNP and Lib Dem leaders, and Mr Stephen's hard line came after his MSPs had confirmed their no-compromise message.

Mr Salmond had shown a willingness to compromise, but his decision not to completely relinquish his referendum plans was too much for the Lib Dems.

A senior SNP source said Mr Salmond had made it clear to Mr Stephen that a number of options could be put on the table, but only if the Lib Dems agreed to talk about the issues.

These would include: handing over the entire referendum issue to a new constitutional convention and putting it on hold for two years, allowing the Executive to work on other policies before dividing over the referendum in 2009 or 2010.

Meanwhile, a Scotsman/ICM poll asked the SNP's preferred question on independence for the first time - whether "the Scottish Parliament should negotiate a new settlement with the British government so that Scotland becomes a sovereign and independent state".

But it shows the Nationalists would lose a referendum if it were held now. Only 35 per cent agreed with the statement. This contrasts with a poll in October on independence, which found 51 per cent in favour. The figure has fallen amid Labour's sustained attacks on the concept.

Mr Salmond, aware that talks with the Lib Dems were proving problematic, moved quickly to bring the Greens on side yesterday. He held preliminary talks with Patrick Harvie and Robin Harper, the remaining Green MSPs, and secured enough broad agreement to move forward into formal negotiations today.

The Greens are expected to enter into an official coalition deal with the SNP, giving Mr Salmond two extra seats under his control in the parliament, on top of the 47 he won last week.

In return, the Greens are expected to be offered one ministerial post, probably in the environment and rural affairs department, as well as cast-iron promises that the Executive will oppose new nuclear power stations and set tough new targets on emissions.

The 129 MSPs elected last week will gather for the first time in the parliament on Wednesday. They will be sworn in by George Reid, the outgoing Presiding Officer, allowing MSPs to choose his replacement. However, Labour, the Greens, the SNP and the Lib Dems are all reluctant to lose one of their MSPs to the impartial speaker's role.

Annabel Goldie, the Tory leader, has ruled herself out, but other Tory candidates may include Bill Aitken and David McLetchie.

Margo MacDonald, the independent MSP, may be willing. She said: "If this is the best way I can serve Scotland, I have to give it serious thought."

ONLY 35% OF SCOTS BACK INDEPENDENCE

THE SNP would lose a referendum on independence if it was held now - even if the Nationalists were able to set their own question, a Scotsman/ICM poll has found.

With the debate over a referendum on independence at the centre of the political debate in Scotland, The Scotsman put the SNP's preferred referendum question to the public for the first time.

Voters were asked: "The Scottish Parliament should negotiate a new settlement with the British government so that Scotland becomes a sovereign and independent state. Do you agree, 'yes' or 'no'?"

A total of 35 per cent said they agreed with the statement and backed an independent Scotland, while 55 per cent said they disagreed and 10 per cent said they did not know.

The result is significant because it shows how people would vote when presented with the question the SNP wish to put to Scots in a referendum in 2010.

Scotsman/ICM polls have asked independence questions in the past. In October, a poll found 51 per cent in favour of independence, but this has fallen dramatically as Labour's sustained attacks on the concept have continued.

The Nationalists insisted, however, that they would win the argument over time.

A spokesman said: "The circumstance in which an independence referendum will be won is by the SNP building trust and credibility in government, and delivering solid achievement. That positive process will move support towards the independence position."

ICM claimed last night that its final poll for The Scotsman last week was the most accurate of any opinion poll in the campaign, coming closer to the result than any other.

CASE IS FAR FROM CLOSED

AT LEAST one legal challenge is being prepared over the results of the Scottish Parliament elections, it emerged last night, writes Hamish Macdonell.

Allan Wilson, the former Labour minister, who lost his seat in Ayrshire by a narrow margin, is discussing a possible court challenge with Labour solicitors.

Across Scotland, more than 100,000 votes were discounted because they were classed as spoiled ballots. The Scotland Office has pledged an investigation and the independent Electoral Commission is to carry out a statutory review.

Mr Wilson lost the seat of Cunninghame North to the SNP by 48 votes in a constituency where there were more than 1,000 rejected papers.

It is understood his concerns are focused on 100 ballot papers which were rumoured to have gone missing following the sea journey from Arran to Irvine.

But Ian Snodgrass, returning officer for Cunninghame North, last night said: "Following allegations we have hand-counted the Arran ballot papers. These are in accordance with the accounts submitted by the polling stations. There are no missing papers from the Isle of Arran."