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Turkish Prime Minister Ahmet Davutoglu will return the mandate to form the next government to President Tayyip Erdogan on Tuesday after weeks of talks with opposition parties failed to produce a coalition, a senior ruling party official said, according to Reuters.

Under the terms of the constitution, Erdogan could dissolve Davutoglu's caretaker cabinet and call for the formation of an interim power-sharing government to lead Turkey to a new election in the autumn, if no deal is reached by Aug. 23.

Such a temporary arrangement would theoretically hand cabinet positions to four parties with deep ideological divisions, leaving policy-making paralysed and deepening instability which has sent the lira to a series of record lows.

The currency hit a new low of 2.8776 against the dollar overnight.

The ruling AK Party failed to hold on to its majority in a June 7 election, leaving it unable to govern alone for the first time since coming to power in 2002. That plunged Turkey into uncertainty not seen since the fragile coalitions of the 1990s.