Australian Prime Minister Julia Gillard called a leadership vote on Thursday after party rivals urged her to step aside and for former leader Kevin Rudd to head the minority government, in an attempt to stave off election defeat.
Gillard's leadership has been under threat for most of the past two years as voters desert the Labor government, leaving it facing defeat in a Sept. 14 general election.
However, if Gillard is replaced as leader, key independents who back her government may withdraw their support, possibly prompting an earlier election.
Gillard announced the leadership vote, scheduled for 4.30 p.m. (0530 GMT), during parliament's question time, shortly after a senior minister called for her to step aside for a leadership ballot.
"This is not personal. It's about the party, the future of the country," said senior Labor minister Simon Crean, a former strong supporter of Gillard who has shifted to back her chief rival, Rudd.
Gillard, Australia's first female prime minister, replaced Rudd in a party coup in June 2010. The dumping of Rudd, an elected prime minister, angered many voters who have never forgiven Gillard for the way she became leader.
Gillard has since failed to arrest a slump in opinion polls, which predict a major defeat in September, with Labor losing about 20 seats in the 150-seat parliament. Despite 21-years of economic growth, Gillard's government has failed to win over voters who believe her economic management is flawed.
There is very little difference in economic policies between the government and conservative opposition. But opposition leader Tony Abbott has promised to scrap a 30 percent tax on coal and iron ore mine profits, and to scrap an unpopular tax on carbon, if it wins power.
Financial markets had little reaction to the news. The Australian dollar was a shade firmer on the day thanks mainly to a surprisingly strong reading of manufacturing from China, Australia's biggest export market.
"If there is a new leader, they might decide to bring the election forward which could actually help limit any political uncertainty," said Michael Turner, a strategist at RBC Capital Markets.
The currency was at $1.0380 and holding in a very tight range. Government bonds hardly budged, with investors assuming future borrowing needs would be much the same whichever leader or party was in power.
A switch to Rudd would also mean a likely shakeout of senior ministers including Treasurer and Deputy Prime Minister Wayne Swan, who openly criticised Rudd during a previous, failed leadership challenge by Rudd in February 2012.
But Rudd is unlikely to have any major policy differences from Gillard if he returns as prime minister.
Abbott moved to take advantage of the turmoil by seeking to move a motion of no-confidence in parliament in Gillard, but the motion lost because it failed to attract the 76 votes needed for an absolute majority although it had 73 votes to Labor's 71.