Löfven said he had the support of his party in making compromises with the Centre Party, one of the four parties that make up the centre-right Alliance.
“We are open to work in a constructive way for Sweden to get a new government as quickly as possible,” the Social Democrat leader said.
He said he was prepared to agree on lowering the highest marginal tax rate (värnskatt), but he singled out labour market reforms as an area where it was hard for both sides to agree.
Löfven may still face a parliamentary vote on whether he will be Sweden's next prime minister, but after the Centre Party's decision to vote against him, it is unlikely he would pass such vote.
“We chose to give the Social Democrats a last chance. Over the past five days, we have worked day and night to reach a collaboration,” the Centre Party's leader, Annie Lööf, told reporters.
But she said: “Unfortunately I must tell you that the result does not allow for collaboration.”
Parliamentary speaker Andreas Norlen was on Monday afternoon holding talks with the party leaders in order to decide on the next stage in the process.
In theory, a government proposal does not need a single vote in its favour in order to pass, but it will fail if a majority votes against it. A minority government can therefore be “tolerated” by abstentions, sometimes called “passive support”.
In addition to support from his own party and centre-left allies the Green Party and Left Party, Löfven also needs one or more of the centre-right Centre Party, Moderates or Christian Democrats, or the far-right Sweden Democrats, to either vote for the proposal or abstain.
Both the Centre Party and Liberals had previously said they were open to a Social Democrat-led government, but the latter alone does not have enough seats to prevent the proposal from failing, and after the Centre Party's announcement on Monday, Löfven looks unlikely to pass the parliamentary vote.
There is no set deadline by which Sweden must form a government, but the number of prime ministerial votes that can be held before a snap election is automatically called is capped at four.
A vote on Löfven would be the second chance after parliament voted down Moderates leader Ulf Kristersson. This happened after the Centre Party and Liberals refused to back a government that relied on support from the far-right Sweden Democrats. This means the country is now in untested waters — previously, parliament had always accepted the first candidate to be proposed.
If Löfven is successful, over days following the PM vote he will present a detailed statement of government and name ministers for the new government.
If he is unsuccessful, speaker Norlén will speak to each of the main party leaders before either naming a new sonderingsperson (a politician tasked with speaking to representatives of the other parties to work out what kind of government would have the support of parliament) or he may nominate another prime ministerial candidate to be voted on by parliament, which would be the third of the maximum of four such votes.
In the meantime, parliament must also vote on a budget. This vote has been scheduled for Wednesday, but the date could be changed to fit around the PM vote.