updated 12/18/2008 8:48:26 PM ET 2008-12-19T01:48:26

Sen. Norm Coleman saw his lead over Al Franken in Minnesota's U.S. Senate race dwindle to just two votes Thursday. Meanwhile, a key court ruling put hundreds of improperly rejected ballots in play and promised the recount would drag into the new year.

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The Minnesota Supreme Court ruled that improperly rejected absentee ballots be included in the state's recount. It ordered the candidates to work with the Secretary of State and election officials to set up a process to identify ballots that were rejected in error. Counties must make a report by Dec. 31.

The ruling came as the state Canvassing Board nearly erased what had been a 360-vote lead for Coleman before the panel began its third day of reviewing disputed ballots Thursday. The Republican incumbent had a 215-vote lead over the Democrat Franken after the initial count of the Nov. 4 election.

There are hundreds of challenges yet to decide, thousands of withdrawn challenges that have yet to be tallied and now the improperly rejected absentee ballots, estimated to number around 1,600. Franken supported and Coleman opposed counting those absentees.

The Supreme Court said the candidates will have a chance to challenge the absentees as they are unsealed and counted, just as they did during the earlier hand recount.

Justice Alan Page dissented. He warned that giving the candidates a say in identifying the ballots was a mistake.

Coleman's lead eroded all day Thursday as the Canvassing Board considered a pile of challenges brought entirely by the Coleman campaign. The pile included a big chunk of withdrawn challenges, many of which went quickly to Franken's column.

The board will resume its work Friday.

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