Fine Gael and Fianna Fail will redraft the agreement underpinning the minority government as a result of the justice controversy that brought the country to the brink of a general election.
Senior sources on both sides last night confirmed a review of the Confidence and Supply Agreement is now warranted in order to prolong the length of the current administration.
The agreement is due to last three budgets, until October 2018.
But it is widely accepted that an election will now be called in the coming months - with all parties arranging selection conventions.
Last night, senior sources said the agreement will be reworked to take account of the recent justice controversy.
Under the proposals, an independent group will be established to implement the recommendations of the Toland Report.
The 2004 report led to what was described as a "cultural deference" towards gardai within the department.
As part of the changes, the new independent group will review the culture within the department and make recommendations about what critics say is the unhealthy relationship between the department and gardai.
Mr Varadkar will today announced a replacement for Frances Fitzgerald as Tanaiste and Business Minister.
Foreign Affairs Minister Simon Coveney is the clear favourite for the job of tanaiste. However, Culture Minister Heather Humphreys is also in the frame.
Ms Humphreys is also being linked to the position of Business Minister, which has a direct role in the Government's Brexit strategy.
"As a minister from the Border region, she has a better understanding than most of the issues and how they affect business," said a source.
Speculation is also rife that Dublin Rathdown TD Josepha Madigan could be plucked from the backbenches and promoted to a senior or junior ministry.
"There isn't going to be a big shake-up but there's room for a little movement," said a source.
In the Dail, the Taoiseach sought to regain some political ground with an attack on Sinn Fein leader Gerry Adams.
He said the outgoing Sinn Fein president was "free to criticise my handling of the events of recent days" but added that, as Taoiseach, he would not rush to judgment. "I appreciate fully that has never been the approach of Deputy Adams or his party," said Mr Varadkar.
"In the Sinn Fein view of the world, people do not deserve a fair hearing, people are executed without trial and punished without getting a fair hearing. I will never operate on that basis.
"I will always ensure that allegations are taken seriously and are also properly investigated before we rush to judgment."
Meanwhile, Sinn Fein has refused to rule out a motion of no confidence in Justice Minister Charlie Flanagan for his role in the debacle that almost led to the collapse of the Government.
The minister remains under pressure for failing to take action after being told an email of significance to the Charleton Tribunal was found in the Department of Justice.
Sinn Fein yesterday placed a motion before the Dail seeking to change the terms of reference of the Charleton Tribunal, which is looking into an alleged smear campaign against garda whistleblower Sgt Maurice McCabe.
The new terms would explicitly include the Minister for Justice and his department.
But the motion is likely to fall as it will be opposed by both Fianna Fail and the Government.
"If we are going to change terms of reference we should do so in consultation with the chairman of the tribunal," Fianna Fail's Jim O'Callaghan said:
"The last thing we want to do is to stick our size 13 foot into terms of reference which seem to be operating efficiently."