Minister for Foreign Affairs Micheál Martin has tendered his resignation to Taoiseach Brian Cowen and will vote against him in a motion of confidence this week as leader of the Fianna Fáil party.
After Mr Cowen challenged rebel ministers and backbenchers to vote him out, Mr Martin confirmed he would fight for a change in leadership.
At a hastily arranged press briefing in Dublin tonight, Mr Martin said the Taoiseach indicated he believes his resignation is not necessary.
Mr Martin - singled out as Mr Cowen's main challenger - now faces the task of drumming up enough rebel support to oust the Taoiseach in a secret ballot.
"I welcome the decision of the Taoiseach to table a vote of confidence in himself at next Tuesday's parliamentary party meeting. I will, in accordance with my views, be voting against the motion of confidence," Mr Martin said.
"In these circumstances, I have offered my resignation to the Taoiseach." However, Mr Martin confirmed he would stay on as Minister for Foreign Affairs at the Taoiseach's request.
"I have reluctantly concluded that, in these circumstances, Fianna Fáil should change its leader before the election and I have informed the Taoiseach of this view," Mr Martin said.
"Having talked to most members of the parliamentary party and many members of the party across the country I believe this is a widely held view."
His comments follow Mr Cowen's earlier declaration that he intended to stay on at the helm of Fianna Fáil, insisting it was in the best interests of the country and the party.
In an effort to face down questions over his leadership, Mr Cowen said he planned to table a motion of confidence in himself as party leader at Tuesday's party meeting.
After two days of consultation with colleagues, Mr Cowen said he had come to the conclusion that stepping down would lead to confusion and loss of authority.
"As Taoiseach my total focus must remain with discharging my duties to the people," he told a press briefing at the Alexander Hotel in Dublin.
"For Fianna Fáil the party is important but the interests of the country are paramount." Mr Cowen said he had no considered resigning. "No. I made no indication of resigning at any time as leader of the party," he said.
The Taoiseach accepted there was "an issue" over leadership but said that question should be resolved quickly.
Under normal Fianna Fáil party rules, a leader would only face a vote on the leadership if a parliamentary party member put forward a motion of no confidence.
He said he wanted to dispense with procedures and put forward the motion himself for a vote when TDs and Senators at Tuesday's parliamentary party meeting.
Minister for Finance Brian Lenihan, considered one of the likelier candidates to take over as leader should Mr Cowen step down, said tonight he was glad the Taoiseach had tabled the motion of confidence in his leadership. A spokeswoman for the minister would not be drawn on how he would vote.
Minister for Tourism Mary Hanafin, another likely contender for the leadership, declined to comment.
Concerns over the Taoiseach's leadership came to a head in the last week after he was publicly grilled in the Dáil on Wednesday on his contacts with former Anglo Irish Bank boss Sean FitzPatrick.
Under pressure, he revealed the names of two other business chiefs who joined him and Mr FitzPatrick for a post-golf match dinner in Druid's Glen, Co Wicklow - Gary McGann, chief executive of Smurfit Kappa, who was a director of Anglo at the time, and Alan Gray, an economist appointed to the Central Bank board by Mr Cowen.
But tonight he rejected that his Anglo contacts were at issue. "The issue here is not about that at all," he said.
"All members of the parliamentary party acknowledge my good faith in relation to all of these issues. My standing in the party is not under question in any way."
Earlier Tánaiste Mary Coughlan confirmed Mr Cowen had completed his process of consulting party colleagues on his leadership.
"I believe that he has to the forefront of his mind this country, and naturally his party, and that the decision that he will be making will be in the best interests of this country," she told RTÉ's This Week programme.
But Minister of State for Education Seán Haughey, who spoke to Mr Cowen on Thursday, said the Taoiseach was not plotting to remain in office.
“I found him in a very philosophical humour, very genuinely open to discussion and debate,” he said.
“I didn’t get the impression of a man who was sitting there plotting to remain in power.” Mr Haughey said he told Mr Cowen he was not communicating with the electorate.
The minister said he got the impression Mr Cowen wanted to do what was best for the country and party.
“If he thought it was in the interests of the party, I think he would consider stepping down,” he told RTÉ Radio today.
Backbencher Noel O’Flynn has openly called for Mr Martin to take over as party leader.
“I think it is time for Brian Cowen to consider his position and to resign as leader of Fianna Fáil and I think what should happen then is that the parliamentary party should come in behind the candidature of Micheál Martin,” the Cork North Central TD said after speaking with Mr Cowen.
A no confidence vote in the Government, tabled by the Labour party, was temporarily blocked on Friday.
Government Chief Whip John Curran refused to free up Dáil time, forcing the party to wait for more than a week to test the Taoiseach’s support.
Labour leader Eamon Gilmore had branded the Government dysfunctional and said it was reneging on commitments to hold an election in the early part of the year.