Julia Gillard has been elected unopposed to the Labor leadership, seizing power in a bloodless Parliament House coup after Prime Minister Kevin Rudd decided not to contest this morning's leadership ballot.

Ms Gillard will now be sworn in as Australia's first female Prime Minister. Emerging from this morning's meeting, she said she felt "very honoured" and said she would be making a statement shortly.

Treasurer Wayne Swan now steps up as Deputy Prime Minister. He was also elected unopposed.

A stony-faced Mr Rudd left the meeting in the company of Labor stalwart John Faulkner.

Ms Gillard now has the task of leading a traumatised and divided party to a federal election which could be held in a matter of weeks.

Mr Rudd's sudden and spectacular downfall makes him the first Labor prime minister to be dumped from office before completing a first term.

The situation came to a head last night after senior factional powerbrokers from the right told Ms Gillard she had enough support to take the leadership.

The powerful Australian Workers Union and Health Services Union also quickly swung their support behind Ms Gillard as Mr Rudd's support base collapsed.

After hours of crisis meetings last night Mr Rudd emerged just after 10:00pm AEST to announce that Ms Gillard had challenged him to a ballot and that he would also stand.

For months Ms Gillard had said that she was not interested in challenging Mr Rudd but as events charged ahead last night it appeared she was left with no choice but to throw her hat in the ring.

As the numbers were crunched it became clearer that Ms Gillard was going to prevail, with supporters on both sides agreeing that she would win.

Mr Rudd's fall from the top has been swift, as his popularity among voters fell from stratospheric highs to disastrous lows in just a few months.

Voters lost faith in Mr Rudd after a series of bungles and backflips, including the shelving of the emissions trading scheme.

Last night he had vowed to fight to remain in office saying the Australian people had elected him, not the Party's factional leaders.