Deputy Prime Minister Julia Gillard has called for a ballot challenging Prime Minister Kevin Rudd to the Prime Ministership.
Prime Minister Kevin Rudd says that he will stand to keep his job.
Labor MPs will vote at 9am tomorrow (Thursday) morning on who will be Prime Minister.
Rudd says calling a leadership ballot is the "right and reasonable thing to do."
The Prime Minister has stressed that he was elected by voters and he will fight to keep his role.
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He says he has been "elected by the people and he will not step down."
Rudd says that "national interests are at stake and not his own personal interests."
During a press conference late this evening, Kevin Rudd said "this matter should be resolved as a matter of urgency."
Factional leaders behind challenge
Mr Rudd also conceded that a number of factional leaders no longer support his leadership.
"Politics is a tough business... every decision I have made so far as Prime Minister has been done for the good of the country."
"If I return as the leader of the Government and Prime Minister, I will be very clear of one thing, this party and Government will not be lurching to the right on the question of asylum seekers," he said.
Kevin Rudd has highlighted the Government's achievements saying Labor has committed to important reforms on infrastructure, health, hospital, closing the gap and the apology.
"As Prime Minister of the country I'm proud of each and every one of these achievements," he said.
Right wing factions in all states have reportedly backed Julia Gillard to challenge Kevin Rudd.
Union backs Gillard
The Australian Wokers Union has also publicly backed Gillard.
In an interview with ABC's Lateline program AWU's Paul Howes said the instability has clouded the Labor party.
"The leadership of our Union took the decision this afternoon that we should throw our support behind Julia Gillard for the leadership."
"Julia Gillard is a strong leader. She managed to kill Work Choices and been a loyal Deputy to the Prime Minister.. change is needed."
Garrett stands by PM
Speaking from Morocco, Minister for Environment Protection, Heritage and the Arts, Peter Garrett says that he supports Prime Minister Rudd - but stressed that he is unsure of the details.
Rudd 'unfit for leadership': Abbott
Opposition Leader Tony Abbott has declared Kevin Rudd "unfit" to be Prime Minister, launching a stinging personal attack against his opponent in what may be one of their last showdowns before an election.
