Spurred by ex-premier Francois Fillon's supporters forming a breakaway parliamentary faction, Fillon and his rival for the leadership Jean-François Copé conditionally agreed to a vote among party members on holding a new election.
The move marked the first time the two camps appeared to agree on the way forward after more than a week of bitter recriminations and angry mudslinging that has done considerable damage to the UMP's reputation.
It followed an intervention by ex-president Nicolas Sarkozy who stepped in behind the scenes to resolve a crisis threatening a decade-old coalition of Gaullist conservatives, centrists, Christian democrats and liberals.
Copé, the declared winner of the leadership vote who has refused calls for a new election, proposed holding the referendum in December or January, insisting he would remain party leader until a new vote.
Sources close to Fillon said he had welcomed the idea but on condition that the referendum be held without delay and that there be "strict guarantees of impartiality" for its organization.
The two camps were in talks late Tuesday on the conditions for a referendum.
The UMP has teetered on the verge of collapse over the dispute, which saw the November 18th leadership vote tarnished by accusations of vote-rigging.
Fillon had upped the stakes on Tuesday by forming a new parliamentary wing to break away from the UMP, depriving the party of credibility and crucial public funding.
Fillon's Rassemblement-UMP group was expected to attract up to 70 of the UMP's 194 members and associate members in the National Assembly — costing the party some of the 42,000 euros ($54,000) per member it receives in public funds every year.
Increasingly worried by the crisis, Sarkozy stepped in and party insiders said his involvement was essential.
"Nicolas Sarkozy's intervention was decisive," said Jerome Chartier, a UMP deputy close to Fillon.
"Finally things are moving," Chartier said.
"A conversation has started and it's moving in the right direction."
Sarkozy, defeated by Socialist François Hollande in May's presidential vote, is anxious to keep the UMP together in case he decides to make a comeback bid for the presidency in 2017.
Copé had urged Fillon to abandon the idea of a splinter parliamentary group, which many UMP members in the upper house Senate are also expected to join.
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Lawmakers have until Friday to declare their party affiliation for next year's funds.
A party appeals commission on Monday confirmed Copé's win in the leadership vote, raising his margin of victory from 98 votes to nearly 1,000 following an examination of complaints over alleged irregularities.
Fillon's camp accused the commission of bias and said he will pursue legal action including a civil suit to have the results overturned.
Opinion polls show the overwhelming majority of French voters and UMP supporters would like to see the party run the election again.