Rhodri Morgan has retained his position as first minister, but has accepted that leading a minority administration will not be easy.

His appointment came after coalition talks between the Conservatives, Plaid Cymru and the Liberal Democrats broke down.

Labour, which won 26 of the assembly's 60 seats, will now seek agreement with other parties on key policy issues.

Addressing assembly members on Friday, Morgan vowed to build a "progressive consensus".

"It will not be easy because minority governments can have all of their legislative and budget proposals defeated or amended out of all recognition if we cannot form a consensus around progressive ideas," the first minister said.

"So we have to find centre of gravity in Welsh politics and the centre of gravity that the people of Wales voted for.

"The overwhelming consensus is on the left and progressive side and that is why we shall be seeking to build a progressive consensus around the legislative and budget proposals."

Before the Liberal Democrats split over joining with the Tories and nationalists a "rainbow coalition" was set to take power.

The Lib Dem national executive tied on nine votes each when the coalition idea was put to them – and under party rules the plan then had to be rejected.

Plaid's leader Ieuan Wyn Jones said of the Lib Dem decision: "The tragedy is that there was a real opportunity for a new form of politics, with a fresh start for Wales.

"There was quite an invigorating feeling as we were preparing the [coalition] document, with the sense that we were on the threshold of a new beginning."