Mari Alkatiri, head of Fretilin, has said his party is in talks with several other blocs to form a governing coalition, but ruled out any deal with Gusmao's party.
 
The new party formed by Gusmao won about six percentage points less votes than the 29 per cent received by Fretilin, according to a count of 97 per cent of ballots cast.
 
Unity government
 
Jose Ramos-Horta, East Timor's president, on Thursday called for a government of national unity saying he feared that a coalition which excludes all the major parties would collapse after several months.
 
"I suggest the idea of involving all parties because I don't want the government to only survive for two or three months and then collapse," he said.
 
"There is no need for an opposition block in the parliament."
 
Ramos-Horta, who won the Nobel Peace Prize for non-violent resistance to Indonesian rule, said he would meet leaders of the parties in coming days to discuss the plan.
 
The weekend parliamentary election followed a year of violence and political turmoil in East Timor, which broke from Indonesian rule in a UN-sponsored referendum in 1999 and has since struggled with widespread poverty, gang violence and other problems.
 
Violent past
 
Julio Tomas Pinto, a professor of political science at East Timor's La Paz University, said it was better for Fretilin to become the opposition if they failed to make a coalition.
 
"To avoid violence, the Fretilin leadership has to make sure its supporters understand that it did not win a simple majority," he said.
 
A former Portuguese colony for 450 years, the tiny nation fought a 24-year struggle against Indonesia and formally became independent just five years ago.
 
In April and May last year, East Timor descended into chaos when fighting between police and soldiers led to gang warfare, looting and arson, causing 37 deaths and driving 155,000 people from their homes.