Mnangagwa, who is a leading candidate to succeed to President Mugabe, flew back to Harare on Thursday after nearly a week abroad as army chiefs and the president met to negotiate Mugabe's exit from office.
The 93-year-old president has refused to resign, sources said, after soldiers this week put him under house arrest in a stunning turnaround for the veteran leader who has ruled Zimbabwe with an iron fist since 1980.
The military was strongly opposed to Grace's rise, while Mnangagwa has maintained close ties to the defence establishment.
Mugabe's motorcade yesterday took him from his private residence to the State House for the talks, which were also attended by envoys from the Southern African Development Community (SADC) regional bloc.
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"He is refusing to step down. I think he is trying to buy time," said a source close to the army leadership who declined to be named.
Zimbabwe was left stunned by this week's military intervention which came after Mugabe's advanced age sparked the bitter succession battle between Grace and Mnangagwa.
Mnangagwa, 75, was previously one of Mugabe's most loyal lieutenants, having worked alongside him for decades.
But he fled to South Africa following his dismissal and published a scathing rebuke of Mugabe's leadership and Grace's presidential ambitions.
The military said Friday they had detained some "criminals" in Mugabe's government in a reference to supporters of Grace's presidential ambitions.
State TV said a graduation ceremony at a university where Mugabe is the chancellor would proceed as planned today, although it was unclear if he would attend.