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Irish politics set for seismic shift

Elections a temporary blip: Dublin commissioner

An inconclusive general election result has thrown Irish politics into disarray, promoting a flurry of back-room negotiations among the country's political parties to form a coalition government.

The former coalition government made up by Fine Gael, led by Enda Kenny, and the Irish Labour party fell short of a majority following the election on Friday with Labour losing more than a quarter of its seats, the Irish Times reported Monday.

Meanwhile, rival parties such as the center-right Fianna Fail (the largest opposition party) and Sinn Fein, improved their tallies.

Out of the 158 seats to be filled in the Irish parliament, Enda Kenny's Fine Gael party looks likely to end up with 52 seats (down from 67 seats), Fianna Fáil 43, Sinn Féin 23 and Labour seven (down from 33 seats in the last parliament), the Irish Times reported, with the remaining seats won by smaller parties and independents, who also saw their shares of the vote increase.

LEON NEAL/AFP/Getty Images

National broadcaster RTE reported that the voter turnout was 65 percent and that the votes int 35 out of 40 constituencies had been counted and declared.

Now the country's political leaders are trying to win the support of smaller parties in a forthcoming vote on March 10 to put forward candidates for the position of Taoiseach, or prime minister, who will then have the mandate to form a government.

Fine Gael's Kenny and Fianna Fáil's leader Micheál Martin are both in strong positions for the role.

Irish news reports suggest it is unlikely for political rivals Fine Gael and Fianna Fáil to form a grand coalition government with both parties indicating no such move ahead of the election. Sinn Fein has also said it would not prop up a government of either party.

If a coalition of some sort cannot be formed, a second election is a possibility.

Any prolonged political instability in Ireland could threaten the country's economic recovery but the chief executive of the Irish government's foreign investment agency, IDA, told CNBC on Monday that uncertainty over the political outlook was not a risk.

"I think we're going to see a coalition government and we've seen coalition government's for decades here in Ireland," Martin Shanahan told CNBC on Monday.

"And again the fundamentals haven't changed. We're an extremely attractive economy for investment so there's no reason for international investors to be concerned."

Meanwhile, Niamh Bushnell, Dublincommissioner for start-ups, called the inconclusive election resulta "temporary blip."

"There's a lot to play for still, there's a lot of horse-trading going on, there's a lot of counting going on, Ireland remains an open, stable economy. It'll be a couple of bumpy weeks though," she warned.

- By CNBC's Holly Ellyatt, follow her on Twitter . Follow CNBC International on Twitter and Facebook.