The Sunni-backed list led by Iyad Allawi, a former prime minister, also accused Nouri al-Maliki, the incumbent PM, and his allies of clinging to power at the expense of Iraqi people.

"We will never be part of a sectarian government. Iraqi people refused sectarianism when the majority of them gave their votes to our list, which includes all Iraqi factions, religions, ethnicities and sects," al-Mulla said.

Khalid al-Asadi, co-founder of al-Maliki's State of Law list, denied the allegation.

"Actually, those who describe our alliance [with the Iraqi National Alliance] as sectarian are sectarian themselves," he told Al Jazeera.

"We consider this accusation a kind of sectarian incitement. We are patriots who promote a civil state in Iraq."

Sistani's final say

The two Iraqi blocs' agreement stipulates that Ali al-Sistani, an Iranian-born cleric in Iraq who holds the highest rank among Shia scholars, would have final say in any dispute between the parties.

special report View Al Jazeera's in depth coverage of the Iraqi election

Marina Ottoway, the director of the Middle East Programme at the Carnegie Endowment for International Peace, described the move as a disaster.

"It is a disaster that Iraqi parties would give the final say to a non-elected person. Sistani was never elected and never participated in elections," she said. 

"It is a very dangerous move, especially to Iraqiya and other Iraqi parties. Sunni Muslims would boycott a government that gives the final say to Sistani.

"Meanwhile, Kurds turn a blind eye on all this, because if Sunni Muslims are absent, the post of the president would go again to a Kurd."

The deal, which was struck late on Tuesday between the country's two biggest Shia Muslim alliances, allows them to sideline the secular Iraqiya coalition, which won the general election but failed to build a parliamentary majority.

Leadership talks

Discussions about who will become prime minister are now under way between the Shia parties, al-Asadi told Al Jazeera.

However, it is widely believed that the agreement came to light only after assurances were given by the State of Law that al-Maliki would not continue in his post.

"Mr al-Maliki has left the decision to the leadership of the alliance. There are certain internal methods to choose the PM candidate at the end of the day, and everyone should respect them," al-Asadi said.

There was no immediate reaction from the United States, which in the past week urged Iraq's politicians to set aside their differences and speed up the process of forming a coalition capable of running the country.

The new Shia alliance remains four seats short of the 163 needed to form a parliamentary majority but is still likely to take office.

According to full preliminary results from the election, State of Law won 89 seats in the 325-member Council of Representatives while the INA, led by Shia religious groups, won 70 seats.

The Kurdish Alliance, made up of Iraq's autonomous northern region's two long-dominant blocs and holding 43 seats, has  previously said it would join the coalition once the two main  parties sorted out their differences.

The final number of seats gained by each party could yet change, however, as electoral authorities are conducting a recount of votes in the key Baghdad constituency, which accounts for 70 parliamentary berths.

In addition, nine election-winning candidates are awaiting a ruling on whether or not they will be allowed to take office. One winning candidate, from Iraqiya, has already been disqualified.

Al Jazeera's Ahmed Janabi contributed reporting to this story.