Confusion is swirling over the Greek Prime Minister George Papandreou and the Athens government.

Sky News of Britain is reporting that the proposed referendum on the latest Eurozone rescue deal will be shelved, but also noted that Papandreou would not resign from office.

Earlier reports indicated that Papandreou would step down and help form a coalition government with Lucas Papademos, a former senior official at the European Central Bank, becoming the new Prime Minister.

Already, due to a growing rift between Papandreou and senior members of his own ruling Pasok party over the referendum and the related austerity program, Papandreou was dangerously close to losing a majority in parliament and endured repeated calls to step down.

Now, according to Sky News, Papandreou plans to hold talks with opposition leaders who have been demanding early elections and the formation of a new transitional government.

Some media reports are circulating claiming that opposition leaders might agree to the referendum if Papandreou subsequently agrees to step down.

There is no reason to have a referendum if there is consensus between the two large parties, a spokesperson for the prime minister's office said, according to Sky News.

Associated Press also is reporting that Papandreou will scrap the referendum, following an emergency cabinet meeting. One unnamed official said Papandreou would wait until Friday’s crucial confidence vote before deciding if he will step down or not.

AP noted that Papandreou told the cabinet The referendum was never an end in itself. We had a dilemma - either true assent or a referendum. I said yesterday, if the assent were there, we would not need a referendum.

Reuters reported that almost three dozen lawmakers (from both Pasok and opposition parties) published a letter to Papandreou demanding new elections and the elimination of the referendum.

We consider the formation of a unity government necessary to take over the implementation of national goals and lead the country as soon as possible and securely to elections.”

Earlier on Thursday, Papandreou’s finance minister Evangelos Venizelos expressed his opposition to the referendum (Venizelos is regarded as a long-time rival to Papandreou).

Greece's position within the euro area is a historic conquest of the country that cannot be put in doubt, he said. “[It] cannot depend on a referendum.”

Sky News’ economics editor Ed Conway commented: Having previously run against George Papandreou for Prime Minister, [Venizelos] clearly has ambitions beyond his current position. And with the government’s coalition extremely narrow – potentially by a couple of seats or fewer, it’s questionable as to whether it will survive the day.