Australian Prime Minister Julia Gillard called a leadership vote for Feb. 27, setting up a second showdown with her predecessor Kevin Rudd as weeks of growing tension damage the Labor government.

“We need a leadership ballot in order to settle this question once and for all,” Gillard, the nation’s first female prime minister, said at a press conference in Adelaide, after Rudd yesterday resigned as foreign minister. “For far too long we have seen squabbling within the Labor party which has obscured the government’s achievements.”

The move aims to bring to a head 11 days of escalating rivalry between Gillard and Rudd, as opinion polls show Labor’s popularity is hovering near a record low. At stake for Labor is survival of an administration that’s unveiled unprecedented taxes on natural resources and fees to address climate change -- an agenda Gillard calls “nation-changing reform” that has proved unpopular with voters.

“Gillard and her advisors have decided it’s better to lance this boil quickly,” said John Wanna, a professor of public administration at the Canberra-based Australian National University. “If Rudd doesn’t challenge, it’s probably the end of his career, but if he can assemble any numbers, she risks having a damaged prime ministership.”

Gillard said there had been a long-running campaign to undermine her government and that she is best-placed to lead Labor to victory against opposition leader Tony Abbott in elections due in 2013. She sought to head off any attempt by Rudd to continue his campaign even if he loses the ballot.

“If, against my expectation, I do not receive the support of my colleagues I will go to the backbench and renounce any further” ambitions for the leadership, Gillard said. “Kevin Rudd should give a comparable commitment.”

‘Destabilization Campaign’

Australia’s currency maintained two days of declines after stocks declined worldwide on concern reports from Europe and China indicate global growth is slowing. The so-called Aussie dollar bought $1.0635 as of 2:29 p.m. in Sydney from $1.0638 yesterday in New York. Benchmark 10-year government bond yields dropped four basis points to 4.06 percent.

Tensions between Rudd and Gillard have simmered since she ousted him in a June 2010 party coup.

“It is now evident to me and I think it is evident to the Australian people that there has been a long-running destabilization campaign here to get to this point where Kevin Rudd is clearly going to announce that he wants to seek the Labor leadership,” Gillard said.

Doubting Gillard

Rudd resigned at a 1 a.m. press conference yesterday in Washington, where he had been meeting U.S. government officials. In a news conference from Washington today shortly before Gillard spoke, Rudd said he was encouraged by support he has received from party colleagues and said he was best-placed to defeat Abbott.

“I do not believe that Prime Minister Gillard can lead the Australian Labor party to success in the next election. That is a deep belief,” Rudd said. “I believe it is also a belief shared right across the Australian community.”

He stopped short of declaring a challenge, saying he will make a statement on any decision after he returns tomorrow to Australia.

Rudd listed policy challenges facing the country, such as encouraging small businesses to boost investment through tax reform and continuing government support for manufacturing, including the nation’s car industry.

Swan’s Reaction

If Rudd contests the leadership ballot he will need the backing of 52 of the 103 Labor lawmakers. Treasurer Wayne Swan urged colleagues not to return Rudd to the job they ousted him from amid sinking poll ratings and concern about his autocratic style.

“The party has given Kevin Rudd all the opportunities in the world and he wasted them with his dysfunctional decision making and his deeply demeaning attitude towards other people including our caucus colleagues,” Swan said in an e-mailed statement late yesterday. “He sought to tear down the 2010 campaign, deliberately risking an Abbott prime ministership, and now he undermines the government at every turn.”

Attorney General Nicola Roxon, speaking with the Australian Broadcasting Corp., joined Communications Minister Stephen Conroy and Environment Minister Tony Burke in publicly backing Gillard since Rudd’s resignation.

Resources Minister Martin Ferguson told reporters he would back Rudd in a vote.

By saying the ballot should settle the leadership matter once and for all, Gillard is seeking to avoid a repeat of the showdown between Prime Minister Bob Hawke and Paul Keating 20 years ago. After unsuccessfully challenging Hawke, Keating retreated to the backbench, where he prepared a second leadership bid six months later that toppled the prime minister.

Abbott’s Lead

Abbott, a former amateur boxer who studied for the priesthood in the 1980s, leads Gillard as preferred prime minister among voters, with 40 percent support to her 37 percent, according to a Newspoll survey conducted Feb. 10-12. Labor’s primary vote rose 2 points to 32 percent, behind Abbott’s coalition on 46 percent. The survey of 1,141 people had a margin of error of plus or minus 3 percentage points.

A Feb. 2-4 Nielsen poll revealed 57 percent of voters surveyed preferred Rudd as Labor leader, compared with 35 percent for Gillard. The survey of 1,400 people had a margin of error of plus or minus 2.6 percentage points.

Money on Gillard

“What I think the Australian people yearn for right now is a prime minister who they chose, not a prime minister that the faceless men chose,” Abbott told reporters today. “The only way we can get away from a government based on dodgy backdoor deals, deals done in the dark, is to have an election.”

Australian bookmaker Sportsbet.com.au, which says it’s the nation’s largest online betting agency by revenue, is offering to return A$1.25 on every A$1 bet that Gillard will win a leadership contest, from A$1.33 yesterday. It will pay A$3.75 for Rudd, from A$3.15.

“We’ve currently taken more individual bets on Rudd, but there has been five times the amount of money wagered on Gillard,” Haydn Lane, a spokesman for sportsbet.com.au, said in a statement. “Those punters who routinely clean us up on political markets have all stepped into Gillard at short odds.”

After the nation’s closest election in seven decades in August 2010, Gillard cobbled together a minority government with the backing of independent lawmakers and the Greens, giving her a majority of one in the lower house of parliament. Labor risks triggering the collapse of that arrangement if Rudd takes the helm, according to independent lawmaker Tony Windsor.

“I did a deal with the current prime minister,” Windsor told Sky News yesterday after Rudd’s resignation. “If the Labor party suddenly wants to change arrangements in the middle of the stream, all bets are off.”