In a historic political move, the leaders of the Liberals, NDP and the Bloc Quebecois signed a formal agreement Monday to topple the Tories and co-operate as a coalition government for at least 18 months.

"I'm pleased to announce we are ready to form a government," said Dion, adding that the new alliance will "effectively, prudently, promptly and competently address these critical economic times."

Dion said the coalition will include a pared-down cabinet with 24 ministers plus the prime minister. Six of those spots will go to the NDP.

The opposition plans to take down the government with a confidence vote next Monday.

Earlier on Monday, Dion announced that he would inform Gov. Gen. Michaelle Jean that he had secured enough parliamentary support to form a new government. Under the constitution, the Governor General must approve the new government or call an election.

"Canadians elected 308 members of Parliament in October, not just Stephen Harper," said Dion, noting the new government would "promptly" implement an economic stimulus plan.

Dion was clear that he would step aside when the Liberals elect a new leader in Vancouver on May 2.

NDP Leader Jack Layton said the agreement represented "enormous optimism" and represents a new way of governing, where parties can put aside their differences for the greater good of Canadians.

"I think it's likely to produce very good government. If I didn't believe that, I wouldn't be here," he said.

Tories mull their options

The Conservatives, meanwhile, said they would consider "all options" to stop the new coalition from taking power, The Canadian Press reported.

One possible plan would be to prorogue until the Tories deliver their budget, which would shut down Parliament until January.

But that would only delay an inevitable defeat for Harper, according to Errol Mendes, a constitutional expert at the University of Ottawa.

Additionally, Harper could ask the Governor General to dissolve Parliament and call another election, but that is also unlikely, said Mendes.

"It would be insane to grant that dissolution, given that we just had an election eight weeks before," he told CTV Newsnet.

Meanwhile, Tory Transport Minister John Baird said that it was shocking to see the Liberal party "get in bed" with the NDP and the Bloc.

"Canadians are going to go ballistic when they see the photos of these three," he told Mike Duffy Live.

"These big spenders seem to be ready to go on an orgy of big spending on the tax payer's dime. It's taking out the credit card, giving it over to Jack Layton and Gilles Duceppes and saying 'here, go nuts.'"

Grits unite behind Dion

The announcement comes only hours after the three Liberal leadership contenders said they would support Dion as the leader of a new government coalition with the NDP and the Bloc Quebecois.

Speaking outside of the Liberal caucus meeting, Dominic LeBlanc, standing shoulder to shoulder with Bob Rae and Michael Ignatieff, said they all back the deal forged with the NDP.

"The accord that was presented to us received unanimous support and the other issue which is very important is we decided the only person and the best person to lead and form a coalition government is the elected leader of our party, the leader of the opposition Stephane Dion," LeBlanc said.

Ignatieff echoed his words, saying the coalition deal is economically responsible, preserves Liberal ideals and upholds Dion as party leader until May.

"We are at one, the three of us, that the only person who can lead the party is the duly elected leader of the party Mr. Stephane Dion," Ignatieff said.

Earlier Monday the candidates met with Dion, who presented them with the draft agreement that has been negotiated with the New Democrats and the Bloc Quebecois, who would support the coalition from outside of government.

The current political storm erupted last week after Finance Minister Jim Flaherty unveiled his economic update -- a blueprint that contained no stimulus package, temporarily shut down public servants' ability to strike and outlined plans to slash public funding for political parties.

As a confidence motion the fiscal update must pass in the House of Commons or the government would fall.

Almost immediately after Flaherty's announcement, opposition parties began meeting to discuss forming a coalition.

Details have been in the finalization process over the weekend and on Monday as party members worked to hammer out an agreement to topple the Conservatives.

In Parliament Monday afternoon, Dion accused Harper of playing politics at a time when Canadians are worried about their jobs.

"Does the prime minister still believe he enjoys the confidence of this House?" asked Dion.

Harper responded that his government has already taken action for the economy, including helping seniors and doubling infrastructure spending.

Harper added that Dion is "about to play the biggest political game in history" by toppling the Conservative government.

But Liberal Sen. David Smith said the opposition parties were galvanized by Harper's increasingly "aggressive" tone since the last election.

While countries like the U.S. have been breaking down partisan barriers to battle economic problems, Harper has been attacking his rivals, Smith told CTV Newsnet.

"(It) just made everybody made and did nothing to stimulate the economy."

Economic guidance

CTV's Ottawa Bureau Chief Robert Fife reported earlier Monday that a high-profile, four-person economic panel would guide a Liberal-NDP coalition government on finance matters.

The group would comprise Frank McKenna, Paul Martin, John Manley and Roy Romanow.

McKenna is a former Liberal premier of New Brunswick and ambassador to the U.S., Martin is a former Liberal finance minister and prime minister, Manley is a former Liberal finance minister and foreign affairs minister, and Romanow is a former New Democrat premier of Saskatchewan.

The panel of "wise men" would help the new government navigate the current global economic turbulence, said Fife.