The Fiji Labour Party and the United People's Party, led by Mick Beddoes, have signed a memorandum of understanding to jointly contest next year's general elections by sharing preferences.
The Labour leader, Mahendra Chaudhry, has told Radio Legend that the agreement does not restrict either of the parties from contesting all 71 seats in the House of Representatives.
Mr Chaudhry says the coalition agreement stresses multiracialism, the need for affirmative action policies for indigenous Fijians as well as the marginalised of all communities, sustainable development, alleviation of poverty and a just wage.
He says the coalition will put out a join election manifesto based on broad agreement on fundamental issues important to both parties.
Mr Beddoes says although Labour and the UPP have reached agreement, negotiations are still continuing with other parties to join the coalition.