The leaders of the federal Liberals and NDP are pouring cold water on a CBC report that their parties have been holding secret talks about possibly merging to form a new entity to take on the Conservatives.

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Liberal MP Bob Rae, left, looks on as Liberal Leader Michael Ignatieff speaks to the media on Wednesday, June 9, 2010. ((Sean Kilpatrick/Canadian Press))

Liberal Leader Michael Ignatieff called discussions of a merger "ridiculous," while NDP Leader Jack Layton said it was a "fiction."

"It makes no sense," Ignatieff, standing alongside Liberal MPs Bob Rae, Dominic Leblanc and Marlene Jennings, told reporters Wednesday after his party's weekly caucus meeting in Ottawa.

"I'm proud to be a Liberal and the people around me are Liberals and we're going to form a Liberal government, which means a progressive, compassionate and fiscally responsible alternative for Canadians."

Meanwhile, Layton insisted there weren't any merger discussions, noting that Ignatieff already "walked away" from a coalition to replace Prime Minister Stephen Harper's government in early 2009.

"There's obviously some discussion going on within the Liberal Party about their issues," Layton told reporters in Ottawa. "I don't have any comment on that."

The NDP leader also noted Ignatieff ensured enough Liberals were absent from a Tuesday night vote to let the budget bill pass its final hurdle in the House of Commons and stave off the minority Conservative government's defeat.

"As recently as last night, he made sure his party supported the Harper government in a series of policies that Mr. Ignatieff said he didn't support," Layton said.

During a rowdy question period session on Wednesday, the prime minister threw a jab at Ignatieff when the Liberal leader questioned the government's spending for the upcoming G8 and G20 summits.

"They talk about a fake lake," Harper said, in reference to the uproar over an artificial pool being constructed at the summit media centre in Toronto. "What we're learning from these coalition talks is that they've got a fake party over there."

'Get a grip': Rae

The comments come after many Liberal insiders confirmed to CBC News that discussions between the two parties are not just focused on forming a coalition after an election or co-operation before one, but on the creation of a new party amid rumblings of dissatisfaction over Ignatieff's leadership and the party's dismal position in recent opinion polls.

Warren Kinsella, a former adviser to former prime minister Jean Chrétien, told CBC News that "serious people are involved in discussions at a serious level."

But Rae, who ran against Ignatieff in the 2006 party leadership contest, said there was "no substance" to the rumours, and advised the media to "take a deep breath and get a grip.

"I think we all have to recognize that in politics, particularly toward the end of a session, all sorts of rumours start flying around, but this one has absolutely no substance that I can detect," said the Liberal MP.

Rae sparked speculation over a potential deal with New Democrats when he mused in a blog post about a coalition he was part of in Ontario 25 years ago as leader of the provincial NDP. But he again dismissed the importance of his blog post, saying "any link between that and now is non-existent."