A three-party coalition of opposition parties is poised to take power in Wales, installing a nationalist as First Minister and consigning Labour to the wilderness after 80 years as the country’s dominant political movement.

Plaid Cymru is on the brink of agreeing a power-sharing deal with a “rainbow alliance” of Welsh Conservatives and Liberal Democrats, leaving Labour in the cold even though it won the most votes and seats in the assembly election. It would be the first three-party coalition in Great Britain since Lloyd George was Prime Minister and leave Gordon Brown dealing with nationalist politicians in Scotland and Wales.

Ieuan Wyn Jones, the Welsh nationalist leader, is to become First Minister and lead a coalition with a radical environmental programme, halting a series of unpopular hospital closures across Wales and making education a priority.

Nick Bourne, the Welsh Conservatives’ leader, and Mike German, leader of the Lib Dems’ assembly group, are both expected to become Deputy First Ministers. The deal would make possible the first Conservative ministers since John Major’s crushing general election defeat in 1997.

Unlike Alex Salmond in Edinburgh, who leads a minority government, Mr Jones can expect to govern Wales for a full term if his coalition partners honour a four-year contract that will underpin their deal.

Together the three parties have 33 seats in the 60-member Welsh Assembly. One member from Plaid Cymru and one from Labour act as presiding officer and deputy and do not vote, giving the coalition a three-seat majority; it might look slim, but is comfortable in comparison with two periods of minority rule in the Assembly’s eight-year history.

In another contrast with nationalists in Scotland, Plaid Cymru relegated its support for independence before the election to a “long-term vision”, so removing a potential bar to working with Unionist parties. All three groups will instead press for a referendum on whether Wales should have a law-making parliament like Scotland. Regardless of the outcome, the new Welsh Assembly has more powers with provisions to pass its own laws, or “measures”, if Parliament agrees to each request.

The coalition faces an era of belt-tightening with signs from the Treasury that spending growth for the £14 billion budget to run Wales will slow to 5 per cent next year, down from 10 per cent in its first term and 6.5 per cent in its second.

The prospect of a “rainbow” coalition taking power, and the speed with which it has been assembled, has stunned the small world of Welsh politics. Serious talks between the three leaders began ten days ago and their coalition programme is expected to run to 20 pages, giving a framework but leaving much detail still to be determined.

Rhodri Morgan, the Labour First Minister since 2000, told The Times: “I don’t think any party that has been so well in the lead has ever been excluded from forming an administration. But that is not to say they cannot. There is no supreme court to appeal to, other than pressure of public opinion.”

Labour polled almost 315,000 votes in the constituency elections, down almost 8 per cent compared with 2003 but well ahead of Plaid Cymru with 219,000, the Tories’ 218,000, and the Lib Dems’ 144,000. Once second votes for regional lists were added, Labour emerged with 26 seats, Plaid 15, the Tories 12, Lib Dems 6 and one independent.

To proceed with his coalition, Mr Jones must win the approval of his party’s executive committee tonight and a vote of its national council on Saturday. Mr Morgan, 67, who planned to step down in 2009, would not be drawn on his future but may face pressure to go earlier. Andrew Davies, Carwyn Jones and Huw Lewis are tipped as candidates to replace him.

Mr Bourne defended the decision to take the Welsh Tories into government with avowedly left-wing Welsh nationalists. “The reality here is that no single party is going to be able to govern in the Welsh Assembly on their own,” he said. “If we are able . . . as Conservatives, to do Conservative things for Wales, which we believe will help the Welsh people and improve things in Wales, we would be crazy to turn our backs on that opportunity.”

Joint policies

— Halt to hospital closures

— More emphasis on local decision-making and community provision. More money for schools and university education to narrow gap with England on spending per student; smaller classes; help with student loans

— Emphasis on renewable electricity, tougher targets for cutting carbon emissions, incentives for energy conservation

— Vote in Welsh Assembly for referendum to give it full law-making powers on a par with the Scottish Parliament

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