"Both Fine Gael and Fianna Fail have reached a political agreement to facilitate a Fine Gael-led minority government," Fianna Fail said in a statement.
"Both party leaders are now being briefed, extensive drafting has to be done and then both Fianna Fail and Fine Gael will hold separate parliamentary party meetings to outline the details of the confidence and supply arrangement," the statement said.
The outgoing coalition has remained in place in a caretaker capacity since a general election on February 26, in which neither party attracted enough votes to form a government on its own.
Although both parties are considered centre-right, their relationship is riven by mistrust and historical enmities dating back to the 1920s Irish civil war.
Fine Gael won 50 seats and Fianna Fail 44 in the 158-seat Dail, or lower house of parliament.
Anti-austerity Sinn Fein won 23 seats.
A deal between Fine Gael and Fianna Fail this week to suspend controversial water charges had nudged Ireland closer to the formation of a minority government after more than two months of tortuous negotiations.
Together, the two centre-right parties would have more than enough seats to form a stable government but Fianna Fail has ruled out a formal coalition.
Instead, it had offered to support Fine Gael if agreement could be reached on key policy issues.
Deal reached in Ireland to form minority government
30 April 2016
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Irish Prime Minister Enda Kenny`s Fine Gael party was on Friday poised to form a minority government after striking a deal with its longtime rival Fianna Fail, following inconclusive elections in February.
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