Lebanon will probably have a new national unity government in place before next week's Christmas holiday, the finance minister said on Tuesday, raising hopes for an end to more than seven months of deadlock over cabinet posts.

Efforts to form the new government have been obstructed by rival groups' conflicting demands for seats in a cabinet that must be formed in line with a finely balanced, sectarian political system.

A source close to Prime Minister-designate Saad al-Hariri told Reuters there was "reasonable cause for optimism" and the Hariri-owned al-Mustaqbal newspaper reported, "The road to the government has become open to a very large degree".

Heavily indebted and suffering from a stagnant economy, Lebanon is in dire need of an administration that can set about long-stalled economic reforms to put public debt on a sustainable footing.

"We are in the last phase and it is probable that the government will be formed before the Christmas holiday," Ali Hassan Khalil, the finance minister, told Reuters. "This will leave a positive impact on the financial and economic situation and open the way for a start to dealing this file," he added.

The final logjam has been over Sunni Muslim representation, with a group of Sunni MPs allied with the heavily armed Shi'ite Muslim Hezbollah, Lebanon's most powerful group, demanding a cabinet seat to reflect gains in the May election, in which Hariri lost more than a third of his lawmakers.

Hariri, who remains Lebanon's leading Sunni despite his losses, had ruled out ceding one of his cabinet seats to any of the six Hezbollah-allied Sunnis, who are also known for their ties to the Syrian government of President Bashar al-Assad.

But under a compromise taking shape, the Hezbollah-linked Sunnis are expected to put forward names of ministerial candidates acceptable to them for inclusion in the government rather than insisting that they themselves should get the seat.

In exchange, they say they want Hariri to acknowledge their political standing as a group of Sunnis independent of his Future Movement by meeting them. The Hariri family has dominated Lebanese Sunni politics for decades.

The Sunni minister is expected to be named among a group of ministers allotted to President Michel Aoun, representing a compromise on the part of his Free Patriotic Movement which had been trying to secure control of 11 ministerial portfolios - more than one third of the new cabinet.

"In the coming hours, the country may see a new government," said Qassem Hashem, one of the Hezbollah-aligned Sunni MPs.