A major Egyptian opposition group said Sunday that President Mohammed Morsi's decision to press ahead with a referendum on a new constitution, after rescinding a controversial constitutional decree he issued last month granting him sweeping powers, was "shocking" and would deepen a political crisis.

"It is making things a lot worse," Ahmed Said, member of the National Salvation Front coalition and head of the liberal Free Egyptians Party, told Reuters, a day after Morsi annulled the decree led to deadly protests across the country over the past week.

"I cannot imagine that after all this they want to pass a constitution that does not represent all Egyptians," Said said, adding that the Front would meet later on Sunday to make a formal response to Morsi's decision to scrap the decree but stick to a referendum date of December 15 on a constitution that was drawn up by an Islamist-led drafting assembly.

The National Salvation Front also said Morsi's decision to rescind the decree had "fallen short of expectations" required to defusetensions in the country, reported the state Middle East News agency.

Islamist supporters of Morsi have insisted the referendum should go ahead on time on Dec. 15, saying it is needed to complete a democratic transition still incomplete after autocrat Hosni Mubarak's overthrow 22 months ago.

Morsi's announcement followed talks on Saturday that ran into the night at his presidential palace. Billed as a "national dialogue", the meeting was boycotted by his main rivals and had little credibility among protesters in the most populous Arab nation.

The April 6 movement, which helped galvanize street protests against Mubarak, said in a statement about the outcome of Saturday's talks: "What happened is manipulation and a continuation of deception in the name of law and legitimacy."

The constitution was fast-tracked through an assembly led by Morsi's Muslim Brotherhood and other Islamists. Liberals and others walked out, saying their voices were not being heard.

"A constitution without consensus cannot go to a referendum," said Hermes Fawzi, 28, a protester camped with dozens of others outside the presidential palace. "It's not logical that just one part of society makes the constitution."

Nearby were tanks and military vehicles of the Republican Guards positioned there to protect the palace after clashes in the past week between Islamists and their rivals killed seven people and injured about 350.

The military, which led Egypt through a turbulent interim period after Mubarak fell, stepped into the crisis on Saturday to tell feuding factions that dialogue was essential to avoid "catastrophe." But a military source said this was not a prelude to the army retaking control of Egypt or the streets.

After Saturday's talks, Morsi issued a new decree in which the first article "cancels the constitutional declaration" announced on Nov. 22, the spokesman for the dialogue, Mohamed Selim al-Awa, told a news conference held around midnight.

But he said the constitutional referendum would go ahead anyway next Saturday, adding that although those at the meeting discussed a postponement, there were legal obstacles to a delay.

The political turmoil has exposed deep rifts in the nation of 83 million between Islamists, who were suppressed for decades, and their rivals, who fear religious conservatives want to squeeze out other voices and restrict social freedoms. Many Egyptian just crave stability and economic recovery.

Islamists and more liberal-minded opponents have each drawn tens of thousands of supporters to the streets in rival rallies since the Nov. 22 decree. Morsi's opponents have chanted for his downfall while Islamists have said there is a conspiracy to bring down the nation's first freely elected president.

The National Salvation Front, whose members include Nobel Peace Prize laureate Mohamed ElBaradei and former foreign minister Amr Moussa, stayed away from Saturday's talks.

Ahead of stating its formal position, Front spokesman Hussein Abdel Ghani said: "My first personal impression is that it is a limited and insufficient step. We repeatedly said that among our top demands is for the referendum to be delayed."

Despite such opposition, Mursi is gambling he can push through the constitution via referendum with the backing of loyal Islamists and many Egyptians who are desperate to move on.

Only after a constitution is in place can an election be held for a new parliament, expected about two months later.

The Islamist-led lower house of parliament elected this year was dissolved after a few months by a court order.

The new decree removed some parts of the old decree that angered the opposition, including an article that had given Morsi broad powers to confront threats to the revolution or the nation, wording opponents said gave him arbitrary authority.

Another article in the old decree had put beyond legal challenge any decision taken by the president until a new parliament was elected, reflecting Morsi's distrust of a judiciary largely unreformed from Mubarak's era.

That article was not repeated, but the new decree said "constitutional declarations including this declaration" were beyond judicial review.

The new decree outlined steps for setting up an assembly to draft a new constitution should the current draft be rejected.

Further, the opposition was invited to offer suggested changes to the new constitution, echoing an earlier initiative by Morsi's team for amendments to be discussed and agreed on by political factions and put to the new parliament to approve.

Amid the violence and political bickering, the army has cast itself primarily as the neutral guarantor of the nation.

"The armed forces affirm that dialogue is the best and only way to reach consensus," the military statement said. "The opposite of that will bring us to a dark tunnel that will result in catastrophe and that is something we will not allow."

The army might be pushing the opposition to join dialogue and for Mursi to do more to draw them in, said Hassan Abu Taleb of the Al Ahram Center for Political and Strategic Studies.

He discounted the chance of direct military intervention.

"They realize that interfering again in a situation of civil combat will squeeze them between two rocks," he added.

But the military seemed poised to take a more active role in security arrangements for the approaching referendum.

A cabinet source said the cabinet had discussed reviving the army's ability to make arrests if it were called upon to back up police, who are normally in charge of election security.

According to the state-run daily newspaper al-Ahram, an expanded military security role might extend to the next parliamentary election and, at the president's discretion, even beyond that.