The South Asian island has been in political gridlock for over a month since Sirisena replaced former Prime Minister Ranil Wickremesinghe with Mahinda Rajapaksa, who was then twice sacked by parliament but has refused to resign.
Mr. Rajapaksa also suffered setback at the hands of a lower court which restrained him from functioning on a quo warranto petition filed by Mr. Wickremsinghe and his MPs.
The news comes after the Supreme Court on Thursday ordered that Rajapaksa should not exercise the powers of the office he has claimed since October 26.
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On Wednesday, parliament passed a vote of confidence in Ranil Wickremesinghe as prime minister. President Sirisena has reportedly agreed to reinstate ousted prime minister Wickremesinghe in the post after a discussion with him over the phone on Friday, local daily Colombo Page reported.
However, the following day, Speaker Karu Jayasuriya ruled that he would recognise neither man as prime minister, leaving Sri Lanka effectively without a government.
Two of the country's highest courts suspended Rajapaksa till he could prove his legitimacy after he failed two no-confidence motions in the 225-member legislature in mid-November. The Cabinet will consist of 30 members and include six Sri Lanka Freedom Party (SLFP) parliamentarians, it said. The apex court asked all parties to provide written submissions within three weeks.
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Mr Wickremesinghe is expected to return to office on Sunday.
Mr Wickremesinghe refused to accept the sacking and challenged it in a court and in the Parliament.
The United National Front (UNF) said the order means Rajapaksa can not be Prime Minister and so the former Cabinet must be reinstated.
Many foreign countries have not recognised Rajapaksa's government.
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"The focus was to make sure we had a system that protected victims and not politicians". He continued: "I am constantly correcting that notion.
The Appeal Court on December 3 issued notice and an interim order against Rajapaksa and his Government, preventing them from acting as Prime Minister, Cabinet and Deputy Ministers. His party and its allies have a simple majority in Parliament and have argued from the beginning that President Sirisena's actions were unconstitutional.