UPDATE 1-Egypt on the edge after Mursi rebuffs army ultimatum
* Islamist president rejects army deadline, says will go own way
* Newspapers say Mursi finished, Muslim Brotherhood rule ending
* Protesters encamped in Tahrir Square, more demonstrations planned
CAIRO, July 2 (Reuters) - President Mohamed Mursi rebuffed an army ultimatum to force a resolution to Egypt's political crisis, saying on Tuesday that he had not been consulted and would pursue his own plans for national reconciliation.
But the Islamist leader looked increasingly isolated with the liberal opposition refusing to talk to him and the armed forces, backed by millions of protesters in the street, giving him until Wednesday to agree to share power.
Newspapers across the political spectrum saw the army's 48-hour deadline as a turning point. "Last 48 hours of Muslim Brotherhood rule," the opposition daily El Watan declared. "Egypt awaits the army," said the state-owned El Akhbar.
The confrontation has pushed the most populous Arab nation closer to the abyss amid a deepening economic crisis two years after the overthrow of Hosni Mubarak, raising concern in Washington, Europe and neighbouring Israel.
Protesters remained encamped overnight in Cairo's central Tahrir Square and protest leaders have called for another mass rally on Tuesday evening to try to force the president out.
Senior members of Mursi's Muslim Brotherhood used the word "coup" to describe the military ultimatum, backed by a threat that the generals will otherwise impose their own road map for the nation.
In a statement issued nine hours after General Abdel Fattah al-Sisi delighted Mursi's opponents by effectively ordering the president to heed the demands of demonstrators, the president's office used considerably less direct language to indicate he would go his own way.
"The president of the republic was not consulted about the statement issued by the armed forces," it said. "The presidency sees that some of the statements in it carry meanings that could cause confusion in the complex national environment."
Official video was released showing Mursi meeting the uniformed Sisi. Their body language seemed awkward, although it was unclear when it was shot.
The statement from Mursi's office continued, "The presidency confirms that it is going forward on its previously plotted path to promote comprehensive national reconciliation ... regardless of any statements that deepen divisions between citizens."
Describing civilian rule as a great gain from the revolution of 2011, Egypt's first freely elected leader, in office for just a year, said he would not let the clock be turned back.
Mursi also spoke to U.S. President Barack Obama by phone on Monday, the presidency said in a separate statement, stressing that Egypt was moving forward with a peaceful democratic transition based on the law and constitution.
The White House said Obama, visiting Tanzania, encouraged Mursi to respond to the protests and "underscored that the current crisis can only be resolved through a political process".
Six ministers who are not members of Mursi's Muslim Brotherhood have tendered their resignations since Sunday's huge demonstrations, including foreign minister, Mohamed Kamel Amr, the official MENA news agency said.
That contributed to a sense that Mursi's administration is disintegrating even as he clings to office.
Mursi's military adviser, U.S.-trained former chief-of-staff General Sami Anan, also resigned.
"The Egyptian people have spoken and as a result everyone must listen and implement, especially since this unprecedented (protest) was accompanied by the fall of some martyrs which is unacceptable because Egyptian blood is valued highly and must be preserved," Anan told al-Arabiya television.
El-Watan quoted senior General Adel El-Mursi as saying that if there were no agreement among political leaders to hold early presidential elections, the alternative could involve "a return to revolutionary legitimacy".
Under that scenario, the sole functioning chamber of parliament, the Islamist-dominated Shura Council, would be dissolved, the Islamist-tinged constitution enacted under Mursi would be scrapped, and a presidential council would rule by decree until fresh elections could be held under new rules, he was quoted as saying.
There was no immediate official confirmation of the reported plan. A military spokesman could not be reached for comment.
Attacks on Brotherhood offices have added to feelings among Islamists that they are under siege. Some Brotherhood leaders, who swept a series of votes last year, said they would look to put their own supporters on the streets.
World powers are looking on anxiously, including the United States, which has long funded the Egyptian army as a key component in the security of Washington's ally Israel.
General Martin Dempsey, the chairman of the Joint Chiefs of Staff, spoke to Sisi, his Egyptian counterpart, on Monday, although it was unclear what was said. It is unclear how far the Egyptian military has informed, or coordinated with, its U.S. sponsors.
A senior European diplomat said that if the army were to go further and remove Mursi by force, the international community would have no alternative but to condemn the toppling of a democratically elected president.
The coalition that backed Sunday's protests said there was no question of negotiating now with Mursi on the general's timetable and it was already formulating its positions for discussion directly with the army once the 48 hours are up.
In his statement, Sisi insisted that he had the interests of democracy at heart - a still very flawed democracy that Egyptians have been able to practise as a result of the army pushing aside Mubarak in the face of a popular uprising in 2011.
That enhanced the already high standing of the army among Egyptians, and the sight of military helicopters streaming national flags over Cairo's Tahrir Square at sunset, after Sisi had laid down the law, sent huge crowds into a frenzy of cheers.
Among Mursi's allies are groups with more militant pasts, including al-Gamaa al-Islamiya, a sometime associate of al Qaeda, whose men fought Mubarak's security forces for years and who have warned they would not tolerate renewed military rule.
An alliance of Islamist groups, including the Brotherhood, issued a cautious joint statement that avoided criticising the army but spoke of it being manipulated by rival parties.
Some Islamist groups, notably the Salafi Nour Party, which came second only to the Brotherhood in parliamentary elections last year, spoke in favour of dialogue.
But the scope for compromise between Mursi and his liberal critics appeared slim without the army imposing a deal.
Liberal coalition leaders appointed former U.N. nuclear watchdog Mohamed ElBaradei as their negotiator with the army and are pushing for the senior judge on the constitutional court to replace Mursi as head of state for an interim period, while technocrats - and generals - would administer the country.
A military source said Sisi was keen not to repeat the experience of the 17 months between Mubarak's fall and Mursi's election, when a committee of generals formed a government that proved unpopular as the economy struggled.
The army would prefer a more hands-off approach, supervising government but not running it.
For many Egyptians, fixing the economy is key. Unrest since Mubarak fell has decimated tourism and investment and state finances are in poor shape, drained by extensive subsidy regimes and struggling to provide regular supplies of fuel.
(Reporting by Asma Alsharif, Alexander Dziadosz, Shaimaa Fayed, Maggie Fick, Alastair Macdonald, Shadia Nasralla, Tom Perry, Yasmine Saleh, Paul Taylor and Patrick Werr in Cairo and Yursi; Mohamed in Ismailia; Writing by Paul Taylor and Alastair Macdonald; editing by Janet McBride)