Prime minister Gordon Brown said today he would resign as Labour leader, although he remains as prime minister.
Mr Brown said he was calling for his party to hold a leadership election which he would back no particular candidate in.
He added that he was continuing “formal discussions” with the Liberal Democrats about a possible deal.
Mr Brown said he hoped a new leader would be installed by the party’s autumn conference.
In a statement outside Downing Street this afternoon, he said he had “no desire to stay in my position longer than needed”.
The country remains in a stalemate following the result of Thursday’s general election.
Although the Conservative Party won the most seats, it did not win a majority.
Talks are being held between between the Tories and the Liberal Democrats on how a possible coalition government can be formed, although the Liberal Democrats are also in talks with Labour.
Tory leader David Cameron also has the option of forming a minority government with the expectation of holding another election before the year is out.
Mr Cameron has said his party can make concessions to the Liberal Democrats on issues such as education and a low-carbon economy but says there could be no compromise with the party on defence and Europe.
Labour has offered a referendum on voting system reform, which is the Liberal Democrats’ key aim.
Earlier today, a Lib-Con deal looked inevitable but Mr Brown’s announcement is seen as a last-ditch attempt for Labour to woo the third party into supporting it.
However, a Lib-Lab pact would still be short of an overall majority.
Mr Brown is one of the most unpopular prime ministers in history. However, a clear successor to his position as Labour leader has not been established.
Those tipped to take over include foreign secretary David Miliband, equalities minister Harriet Harman, home secretary Alan Johnson and education minister Ed Balls.
In the latest PinkNews.co.uk election survey, only nine per cent of our readers said they wanted to see Mr Brown remaining Labour leader.
Mr Miliband was the top choice, with the support of 31 per cent of our sample. Only 11 per cent favoured Ms Harman for the post.