The paralysis born of a divided parliament has prevented the appointment of a new Bank of Japan governor and sparked speculation that Fukuda's ruling party might try to replace him ahead of a general election that could come this year.

No election for the powerful lower house need be held until September 2009, and Fukuda is reluctant to call a poll that would likely see the ruling camp lose its huge majority.

But the main opposition Democratic Party is pressing for an early poll and some pundits say Fukuda -- or his successor -- might be forced to call one to seek a mandate for dealing with the deadlock.

"There is only a short time left, but I have not given up," the 71-year-old Fukuda told a hastily called news conference, referring to the gasoline tax.

"I believe we can achieve a breakthrough if the ruling and opposition parties talk," Fukuda said, adding he wanted to hold talks with main opposition Democratic Party leader Ichiro Ozawa.

The Democrats, which with smaller allies control parliament's upper house and can delay laws as well as veto appointments, wants to abolish a "provisional" gasoline tax whose revenues are devoted to road construction.

Democrats and other critics say the three-decade-old tax is a symbol of the long-ruling Liberal Democratic Party's (LDP) practice of wasteful spending on vested interests.

The Democrats also want to free up other revenues dedicated to road construction and maintenance for general spending.

In a concession to that demand, Fukuda proposed reallocating tax revenues now earmarked for building roads to general spending from fiscal 2009/10.

But he refused to budge on the government's proposal to extend the temporary gasoline tariff in the fiscal year from April 1, saying abolishing the tax now would leave a huge revenue gap in national and local budgets.

"The proposal to shift road revenues to general spending from fiscal year 2009/10 is a step forward, but as for the provisional tax rate, it is close to an empty response," Democratic Party Secretary General Yukio Hatoyama told reporters."What we are demanding is the scrapping of the provisional tax rate."

Analysts said it would be tough for the Democrats to sign on.

"As long as (the government) sticks to the provisional gasoline tax, it will be hard for the Democrats to agree since they have promised gasoline prices will fall by 25 yen," said Hidenori Suezawa, chief JGB strategist at Daiwa SMBC.

Without a deal the gasoline tariff and other measures such as an exemption to a 20 percent withholding tax in Japan's offshore market will expire come Monday.

Fukuda dodged the question of whether the ruling bloc would try to use its two thirds majority in the lower house to enact the tax legislation. That step can only be taken once the bills have either been rejected by the upper house or 60 days have passed since initial approval by the lower chamber on Feb. 29.

"I am not thinking about the future," he said. "What we need to do now is to avoid confusion in the people's livelihoods and local finances, and a negative impact on the Japanese economy."

The LDP would need the backing of its junior partner, the New Komeito party, some of whom might not be willing to go along given voter support for abolishing the tax.

At that point, Fukuda's only option might be to resign or to call a general election, some analysts said.

"There are two major problems. One is whether all the ruling parties can act together on a second vote," said independent political commentator Minoru Morita.

"There is strong opposition to tax increases among the people. If a lot of people abstain and they don't get a two-thirds majority, the Fukuda cabinet will have to step down en masse," he added.