Australian Prime Minister Julia Gillard called a Labor leadership ballot for Wednesday amid party-room moves to depose her in favour of arch-rival and predecessor Kevin Rudd, with the loser committing to quit politics.
The vote was set for 0900 GMT amid mounting unease in the party over an expected rout by the Tony Abbott-led conservative opposition at national elections on September 14.
Gillard or Rudd require a majority of the 102-member Labor caucus.
"There are no more opportunities. Tonight is the night and this is it," Gillard told Sky News.
"These issues need to be resolved. Anyone who believes that they should be Labor leader should put themselves forward."
Rudd confirmed he will challenge, bringing to a head weeks of speculation.
"Many, many MPs have requested me for a long, long time to contest the leadership of the party because the parlous circumstances we now face," he said
"The truth is, if we're all being perfectly honest about it right now, is that we're on course for a catastrophic defeat unless there is change.
"So today I'm saying to you the people of Australia, I'm seeking to respond to your call that I've heard from so many of you to do what I can to prevent Mr Abbott from becoming prime minister."
Gillard ruthlessly dispatched Rudd in a 2010 party room coup but he remains popular with the public and is seen by many as Labor's best hope of salvaging the elections.
Since assuming power, Gillard has endured near-constant speculation about her leadership. She won only the narrowest of victories in the 2010 election, resulting in a hung parliament which forced her to cobble together a minority government with the support of independents.
In March, Labor elder statesman Simon Crean made a failed attempt to reinstall Rudd who refused to put his hand up. In the aftermath, several ministers who backed Rudd resigned while Crean was sacked.
Rudd himself launched an unsuccessful challenge to Gillard in early 2012, issuing an ultimatum from Washington where he was on Australian government business as foreign minister.
The Mandarin-speaking former diplomat who ended a decade of conservative rule with a landslide 2007 win had since insisted the prime minister has his support.
In calling the ballot, Gillard said she would retire from politics if she loses, and called on Rudd to commit to the same, which he did.
But Gillard added: "I wouldn't be putting myself forward unless I had a degree of confidence about the support of my parliamentary colleagues."
Parliament is due to rise on Thursday night for the last time before the national polls, so any ballot had to be held before the legislative body disbands.
The Labor vote brings to a head weeks of speculation about a new challenge against Gillard, who is staring at a crushing election defeat by Abbott, according to opinion polls.
Abbott told parliament earlier Wednesday "the poison inside the Labor Party is paralysing the government" and demanded Gillard bring forward the election to August 3.
"Let's bring on the election and let's put the future of this country in the hands of the people rather than allowing it to continue to be traded by the faceless men in their ceaseless quest to come up with a less unpopular PM than the one we currently have," he said.
Australia's first female leader said it was in the nation's interest to resolve the damaging leadership talk once and for all.
"I have been in a contest with the leader of the opposition, but I've also been in a political contest with people from my own political party," she said.
"No leader should be in that position, certainly no leader should be in that position in the run up to an election and so tonight this is it, finished."