Prime Minister Julia Gillard has given almost $10 billion in incentives to regional Australia to help win the support of two key independent MPs and keep Labor in power.
Rural Independent MPs Tony Windsor and Rob Oakeshott will support Labor to continue as government, while Bob Katter came out in support of the Coalition.
It means Ms Gillard has the 76 votes needed to form government, leaving the Coalition on 74 votes.
Ms Gillard thanked the independent MPs and said this parliament would be more open than ever before.
''Labor is prepared to deliver stable, secure and effective government for the next three years,'' she said.
''The Australian people told us in no uncertain terms ... that we will be held more accountable than ever before and more than any government in modern memory. We will be held to high standards of transparency and reform.''
She told Opposition Leader Tony Abbott and Nationals Leader Warren Truss that people wanted more cooperation, and she pledged to ''work constructively with you and your colleagues to find common ground where we can''.
Ms Gillard said the deal with the independents would mean the next round of the health and hospitals funding and of the education investment fund would focus on regional areas. There would also be $800 million for a regional infrastructure program.
All up, regional Australia would get in the order of $9.9 billion of benefits, and this was a fair share, she said. A tax summit will be held and there are indications the controversial mining tax will be reviewed again.
Labor has also offered Mr Oakeshott a ministry, although he has yet to decide whether to accept it.
Mr Windsor and Mr Oakeshott said broadband was a key factor in their decision, as was an expectation that the Coalition would try to go back to the polls quickly and likely target their seats.
Mr Oakeshott said communities were split since the election, and Ms Gillard's first job as continuing Prime Minister - and to a degree of Mr Abbott - ''is to bring Australia together''.
''There has been 17 days with lots of interest in this creeping number count. It has engaged the Australian community. I have heard discussions from people in shops that I never thought would show any interest in politics at all. Australia is engaged, but Australia is divided,'' he said.
Mr Windsor said they had made their decision about 1.30pm today, after final meetings with the leaders.
They had not told either leader before making the announcement at their press conference.
He said the philosophies of the two major parties had merged over time, and he was taking advantage of this to gain opportunities for country people.
''Philosophy died about a decade ago, or probably longer, this is about using the political system to advantage the people that we represent and the people of regional Australia,'' Mr Windsor said.
Mr Oakeshott said either Ms Gillard or Mr Abbott would be a good prime minister and this had made the decision more difficult.
''[This] is a hard decision. There is no question about that. And at my end, it has been an absolutely line-ball, points decision, six of one half a dozen of the other. This could not be any closer,'' he said.
Mr Oakeshott said he also took into account advice from former independent MP Ted Mack, indicating that they believed Labor had more to gain in working with the cross-benchers than the Coalition.
They considered ''which party has more to gain in working with us, as opposed to which party will try to knife us and go to the early polls''.
''I want to be very clear and upfront that this is not a mandate for any government. ... No one party has dominance over the executive or the parliament ... and that is a good reality,'' he said.
''Nor is it an endorsement of any philosophy, brand or campaign. ... [We are ] thoroughly unimpressed with the state of play of major party politics in Australia.''
Mr Windsor said he had looked at stability and how long a government could last, as well as its relationship with the Senate.
Both sides had put together packages of rural assistance and through this ''they have recognised quite clearly that regional Australia has missed out in the past''.
He said Labor's proposed National Broadband Network was critical in his decision, describing it as an enormous opportunity for regional Australia to engage with the 21st century.
''You do it once, you do it right, and you do it with fibre. That has been one of the major influences that I have had in terms of making a decision,'' he said.
The network will be rolled out across regional Australia earlier as part of Labor's deal with the independents.
He also believed regional Australia could be a major beneficiary of improved renewable energy industries.
''I see a lot of opportunities where others see fear,'' he said.
Meanwhile, Mr Katter said the Coalition had backed eight of the 20 points he raised about support for rural and regional Australia, while Labor's policies did not meet any of them. However, he said he would have voted for Labor if it had not dumped former prime minister Kevin Rudd.
Mr Katter said he had worked well with Ms Gillard in the past, and could continue to do so.
``I can work well and effectively with her,'' he said.
The August 21 election left Australia with a hung parliament with neither major party able to reach the 76 votes needed to form government. Labor won 72 seats and the Coalition 73, with four independents and a Green effectively getting to choose the next government.
Ms Gillard signed deals with Greens MP Adam Bandt and Tasmanian Independent Andrew Wilkie last week, boosting her support to 74 votes.
Mr Windsor and Mr Oakeshott's decisions confirm the recent pessimism within Coalition ranks, where senior figures believed the momentum was slipping away from them despite the fact the three rural independents - who each have a history with the National Party and conservative-leaning electorates - were initially widely expected to side with Mr Abbott.
Their decision had also been held up by negotiations over parliamentary reform. They wanted both sides to agree to a range of changes before they would reveal who they support.
The changes include a speaker who does not sit in a party room and has a deputy from the opposing party, an integrity commissioner, more time for MPs' speeches and a greater role for committees. Parliament will also open with a daily acknowledgement of the traditional owners as well as prayers.
Email a friend