Julia Gillard to become Prime Minister

Julia Gillard will become Australia's first female prime minister after Kevin Rudd stood aside instead of facing a leadership ballot.

Mr Rudd decided not to take part in a leadership ballot rather than face a defeat in the Labor party room shortly after 9am this morning.

"I feel very honoured and I will be making a full statement very shortly," Ms Gillard said to the media as she left the party room.

Wayne Swan will become Deputy Prime Minister in an uncontested ballot, as well as keeping his current job as Treasurer.

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"The next Labor prime minister and the first female prime minister of this country will be Julia Gillard," caucus returning officer Michael Forshaw told reporters after emerging from a party room meeting.

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Ms Gillard's father John said he was incredibly proud and excited to see his daughter become prime minister.

"I knew that Julia would be a formidable performer, but to rise to the highest office in the land was never in the forefront of my mind," he said.

"I think she'll be a prime minister that will build a fair and decent society for Australians, that she'll be a team player and hopefully unite the party behind her and face the election whenever it comes."

Ms Gillard's challenge to Mr Rudd came after the Australian Workers' Union withdrew its support and a group of young turk MPs threw a rocket under his prime ministership.

The drama is believed to have begun on Wednesday morning when NSW powerbroker Mark Arbib, Victorians Bill Shorten and Dave Feeney, and South Australian Don Farrell visited Ms Gillard to tell her they had lost confidence in the prime minister.

Late Wednesday Mr Rudd's leadership began to look untenable when senior union powerbrokers Paul Howes and Bill Ludwig threw their weight behind Ms Gillard.

Mr Rudd said he'd lost support from key members of the party during the last few weeks.

"It has become apparent to me in the course of the last period of time ... that a number of factional leaders in the Labor party no longer support my leadership," he said.

"That is why it is imperative this matter be resolved."

Treasurer Wayne Swan, Finance Minister Lindsay Tanner, Defence Minister John Faulkner and Infrastructure Minister Anthony Albanese were in with Mr Rudd and Ms Gillard through the night.

Nine News political editor Laurie Oakes said Mr Rudd had turned in a "brilliant performance" at the press conference but it was probably too late.

"I can’t see any way Kevin Rudd can survive [tomorrow’s spill]," he said.

"Kevin Rudd is being brave, he’s going to fight to the end, but I can’t see him winning."

Late Wednesday Mr Rudd's leadership began to look untenable when senior union powerbrokers Paul Howes and Bill Ludwig threw their weight behind Ms Gillard.

Mr Howes told AAP they had looked at the Labor research in recent hours and decided a change in leadership was in the best interest of their members.

He and Mr Ludwig had decided it was in the best interest of their members to throw their weight behind Ms Gillard.

Only hours earlier Mr Rudd had denied suggestions that his chief of staff, Alister Jordan, was taking the temperature of caucus to gauge support for his leadership.

"Alister's job, since I became leader of the opposition, is to be in constant contact with members of the parliamentary party and with ministers and with cabinet ministers and parliamentary secretaries," Mr Rudd told reporters.

"I don't think anything's really changed much in the last four years.

"Those are the sorts of conversations that happen every day and have done so ever since I got this job."

Trade Minister Simon Crean, a strong ally of Ms Gillard's, came out in support of Mr Rudd.

"I do not support any leadership challenge," he told AAP through a spokesman.

"Any loose talk or idle speculation on this matter is counterproductive.

"I urge solidarity behind the leader. I support Kevin as the leader."