Iraqi state TV says a top court has ruled that PM Nouri Maliki's bloc is the largest in parliament, in a boost to his bid to stay on for a third term.
The decision would mean the president, who Mr Maliki criticised for not intervening when parliament failed to appoint him, should ask him to remain.
But Arab media cast doubt on the report, carrying an apparent statement by the court denying any decision.
Mr Maliki faces calls to step down amid a jihadist insurgency in the north.
Critics say Mr Maliki, a Shia, has precipitated the current crisis through sectarian policies. Sunnis, Kurds and even fellow Shia have urged him to go.
Pro-Maliki security forces took to the streets of Baghdad on Sunday night.
US Secretary of State John Kerry called on the Iraqi PM not to increase tensions, and warned against use of force by political factions.
"The government formation process is critical in terms of sustaining stability and calm in Iraq, and our hope is that Mr Maliki will not stir those waters," he said during a visit to Australia.
Earlier the US, which has urged Iraq to form an inclusive government, issued a statement backing Mr Masum.
Official complaint"The federal court announces its decision confirming that State of Law is the largest bloc in parliament," state TV reported.
Correspondents say the question of how to define the largest bloc had been a major impediment to Mr Maliki's ambitions since his election victory in May.
Mr Maliki had announced in a TV address on Sunday night that he was making an official complaint against President Masum in court.
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Nouri Maliki said Iraq's new president had violated the constitution
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US Secretary of State John Kerry: "We need to... give a new government the opportunity to be voted on and move forward"
He accused him of "committing a clear constitutional violation for the sake of political calculations and... giving priority to the interests of some groups at the expense of the higher interests of the Iraqi people".
Mr Maliki's coalition won the most seats in April's elections but parliament has not agreed to give him a third term.
Mr Masum had violated the constitution twice, by extending a 7 August deadline for asking the biggest political bloc to nominate a prime minister and then by failing to ask the head of that bloc to form a government, Mr Maliki said.
Shia militiamen and security forces loyal to Mr Maliki reportedly appeared at key centres in Baghdad. There were no reports of violence.
But reports emerged in northern Iraq that Islamic State (IS) militants had captured the town of Jalawla, north-east of Baghdad after weeks of clashes with Kurdish fighters.
On Sunday, Kurdish forces said they had regained the towns of Gwer and Makhmur from the militants, helped by recent US air strikes in Nineveh province.
The US has already launched four rounds of air strikes targeting the militants near Irbil, the capital of Iraqi Kurdistan.
The Kurds have appealed for international military aid to help defeat IS.
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