Kevin Rudd has resigned as foreign minister and is expected to challenge Julia Gillard for the prime ministership as early as next week.
The former Labor leader, who is overseas but will return to his home city of Brisbane on Friday, said he would consult his family and colleagues before making his final decision and heading to Canberra for the next federal parliamentary sitting.
Mr Rudd made the surprise announcement at a late-night press conference in Washington on Wednesday, saying he could not continue as foreign minister because he no longer had the confidence of Prime Minister Julia Gillard.
He said there were "similar factors at play" in June 2010 when he lost the prime ministership to Ms Gillard.
"It's time for some plain speaking on this," Mr Rudd told reporters at the 1am (US time) media conference in Washington DC.
"The truth is, I can only serve as foreign minister if I have the confidence of Prime Minister Gillard and her senior ministers.
Frontbencher Simon Crean and "a number of other faceless men" had publicly attacked his integrity and fitness to serve as a minister in the government, he said.
"When challenged today on these attacks Prime Minister Gillard chose not to repudiate them," Mr Rudd added.
"I can only reluctantly conclude that she therefore shares these views."
Mr Rudd said the Australian people regarded the continuing speculation as little more than a soap opera.
"They are right," he said. "Under the current circumstances, I won't be a part of it."
It would also be distracting for the government for him to continue in the job, Mr Rudd said.
The foreign minister said he was sad to leave the job. "The simple truth is I cannot continue to serve as foreign minister if I do not have Prime Minister Gillard's support," he said.
"I therefore believe the only honourable thing, and the only honourable course of action, is for me to resign."
Mr Rudd also took aim at Labor's factions and those who helped Ms Gillard into power.
"I promise you this - there is no way, no way, that I will ever be part of a stealth attack on a sitting prime minister elected by the people," he said. "We all know that what happened then was wrong, and it must never happen again."
It was now up to caucus to decide on the federal party's leadership. "There is one overriding question for my caucus colleagues, and that is who is best placed to defeat Tony Abbott at the next election," Mr Rudd said.
"Mr Abbott, I believe, does not have the temperament or the experience to ever be elected to hold the high office of prime minister of Australia. "But at present and for a long time now he has been on track just to do that."
The Queensland MP said the leadership speculation was also harming Queensland Premier Anna Bligh's chances of winning the March 24 state election. Mr Rudd's daughter Jessica tweeted: "Effing proud of you, Dad xxxx".
His wife Therese Rein responded: "Me too, Kevin xxxx". Earlier in the day, Industry Minister Greg Combet called for the leadership issue to be resolved as soon as possible.
"Enough is enough. It is time this matter is resolved," Mr Combet said.
Ms Gillard earlier on Wednesday declined to comment on reports she planned to call a leadership spill next week and remove Mr Rudd as a minister if she won.
As of Wednesday afternoon it was understood Mr Rudd could bank on the support of between 30 and 35 caucus members in a ballot, while Ms Gillard had about two-thirds of the caucus on her side.
Opposition Leader Tony Abbott says the resignation of Rudd confirms that the government is unworthy to continue in office.
"Kevin Rudd has confirmed two things - that the faceless men are running the Labor Party and that the instability at the top of this government is damaging our country," Mr Abbott said in a statement.
"Kevin Rudd's statement tonight confirms that this government is unworthy to continue in office."
Mr Abbott said only the coalition can provide the strong and stable government that will address the issues facing our country and restore hope, reward and opportunity for all Australians.
