Kevin Rudd resigns to pave way for leadership showdown with Julia Gillard

Ms Gillard, Australia's first woman prime minister, had been expected to sack Mr Rudd next week amid ongoing speculation that he was undermining her and planning a challenge. The two joined forces to help Labour to sweep back to power in 2007, with Ms Gillard as Mr Rudd's deputy. But her swift move to depose him two years ago triggered a bitter rivalry.

Mr Rudd said today he had been plagued by "similar factors" to those that had led him to resign two years ago, including attacks against him by backroom operators and "faceless men" who questioned his integrity and "fitness to serve as a minister."

"When challenged today on these attacks, Prime Minister Gillard chose not to repudiate them. I can only reluctantly conclude that she therefore shares these views," he said.

He did not publicly announce a challenge but said his party's main aim should be to consider the most likely way to ensure that the Opposition leader, Tony Abbott, does not win the next election.

"I am sad because I love this job," he said. "I am sadder still that it has come to this."

In a bitter response to the resignation, Ms Gillard praised Mr Rudd's service as foreign minister but took a swipe at his political machinations.

"I am disappointed that the concerns Mr Rudd has publicly expressed this evening were never personally raised with me, nor did he contact me to discuss his resignation prior to his decision," she said in a statement.

Ms Gillard has struggled in the polls since becoming leader and was only able to win a minority government at the 2010 election. Meanwhile, Mr Rudd has enjoyed strong public approval and has gained growing support among party members. While the bulk of the party despised him as prime minister – citing his chaotic and autocratic leadership style – he has won support among backbenchers amid fears that Labour would be wiped out at the next election – due in 2013 – under Ms Gillard.

In a stunning reflection of the depth of bitterness in the upper ranks of the party, the deputy leader, Wayne Swan, accused Mr Rudd of being a selfish, disloyal saboteur who worked actively to undermine Ms Gillard during the last election campaign.

"For too long, Kevin Rudd has been putting his own self-interest ahead of the interests of the broader Labour movement and the country as a whole, and that needs to stop," he said.

At this stage, Ms Gillard is believed to have a strong majority in the party-room, though the situation is volatile. The leadership instability could lead to an early election, particularly if Mr Rudd wins a ballot, which could prompt some independent MPs to withdraw their support for the Labor-led Government.

Mr Abbott said the leadership tensions were causing instability and could only end with an election.

"Kevin Rudd's statement tonight confirms that this Government is unworthy to continue in office," he said.