Cabinet to include eight members from PM Sher Bahadur Deuba's Nepali Congress, seven each from Janata Samajbadi Party and Pushpa Kamal Dahal 'Prachanda''s CPN-Maoist Centre, according to reports.
The political stalemate comes at a time when the country is experiencing its worst COVID-19 surge with acute shortages of health facilities and oxygen for patients.
Both Oli and the rival group claim to control the Nepal Communist Party and the issue is being disputed at the Election Commission.
Deuba was elected as the 40th Prime Minister on June 6 with the support from CPN (Maoist Centre) which is now a part of Left alliance and opting for merger with CPN-UML.
Oli, 65, served as the country's prime minister from October 11, 2015 to August 3, 2016. He is known for his pro-China stance.