It has given the job of lobbying other coalition parties to Pracharaj Party leader Snoh Thienthong.
Pheu Thai deputy leader Kanawat Wasinsungworn, secretary-general Sunee Lueangwichit and Chiang Mai MP Surapong Towijakchaikul held a joint press conference to announce this decision yesterday.
Surapong said: "The party has agreed to let Snoh coordinate the formation of a new government with other parties. The Democrats will not be left out. This decision has been made to solve the economic and political crises.
"The new prime minister should come from a smaller party, not Pheu Thai or the Democrats. Otherwise, the conflicts will not be solved," Surapong told the press, before adding that Snoh had a Plan B if the idea fell through.
Surapong said the party did not make this decision because it could not find support to take office, but because it realised all sides should get together to solve the country's problems.
At present, he said, the party had 225 MPs, which might be enough to form a government but it would be difficult to make it work.
And while the caretaker PM could dissolve the House, it would not be the answer. Surapong also said he didn't know if former premier Thaksin Shinawatra had okayed the plan for a national government, but said he thought Thaksin would agree with it.
But Lop Buri MP Suchart Lainamngern was more direct. He said Pheu Thai was using this as a strategy to block the Democrats from forming a government.
However, a source, who asked not to be named, said Pheu Thai had not given up hope of wooing back MPs from the now disbanded People Power Party and 'Friends of Newin' faction. In fact, the party would do anything to find support, even if it meant using connections and calling in favours, the source said.