Australian PM victorious in dramatic leadership challenge

Australian Prime Minister Julia Gillard faced down a leadership challenge Thursday, emerging victorious from a party vote after former leader Kevin Rudd made a last-minute decision not to run.

In a tense day of political manoeuvring, Gillard called the shock ballot as internal unrest reached fever pitch in the ruling Labor party which is floundering ahead of general elections in September.

After being reappointed unopposed as Rudd withdrew and the challenge evaporated, a defiant Gillard said she now planned to get on with governing the country.

"Today the leadership of our political party has been settled and has been settled in the most conclusive fashion possible," she said. "The whole business is completely at an end. It has ended now.

But despite her stunning tactical victory, analysts warned that faction-ridden Labor's internal problems were not over and that the public brawling would further alienate voters.

Gillard's move followed senior cabinet minister Simon Crean openly urging a party ballot to end speculation that was "killing" the party, with the premier lagging badly in opinion polls and leadership speculation rampant.

But Rudd, who was ruthlessly ousted by Gillard in mid-2010, indicated he did not have the numbers to topple the premier, after being roundly beaten when he resigned as foreign minister and launched a previous challenge in February 2012.

Since losing that battle, he has repeatedly pledged his support for the prime minister and despite his backers campaigning behind the scenes, maintained Thursday he was a man of honour.

"I'm not prepared to dishonour my word... others take such commitments lightly, I do not," he said minutes before Labor parliamentarians were due to vote.

"I have also said that the only circumstances under which I would consider a return to leadership would be if there was an overwhelming majority of the parliamentary party requesting such a return, drafting me to return and the position was vacant," he said.

"I am here to inform you that those circumstances do not exist."

With Rudd out of the running, the ballot went ahead with Gillard retaining the leadership with no challengers.

Deputy Prime Minister Wayne Swan also retained his position after Crean withdrew as a candidate, according to Chris Hayes, returning officer for the party vote who described the mood inside the caucus room as "sombre".

Nick Economou, a political analyst at Monash University in Melbourne, said the events leading up to the ballot were a "disaster" for the ruling party.

"This will probably act as a catalyst for another round of leadership instability further down the track," he said.

"We'll know in the next set of opinion polls, I think the damage will be such that it will send Labor's vote into previously uncharted low territory."

As the elections approach, Gillard is struggling to fend off concerns over her leadership and political strategy, and complaints over policy flip-flops that have seen her dubbed "Ju-liar".

The latest polls showed Gillard's personal ratings have risen against conservative opposition leader Tony Abbott but that the Labor Party stood a much better chance of victory under Rudd.

The prime minister has been dogged by leadership unrest for weeks, stoked by government mis-steps as it attempted to introduce media reforms that have united the industry in fierce opposition.

Reports said the government was expected to withdraw its media reform bills from parliament Thursday in what would be a crushing failure.

Gillard assumed the prime ministership in mid-2010, ousting Rudd who, at the time, had lost the support of powerful factional leaders.

She called an election which she failed to win outright from a sceptical public, gaining power only after cobbling together a coalition with a Greens MP and several rural independents to form a majority in the lower house.