The Victorian Government is in turmoil after a tumultuous day that saw Ted Baillieu quit as premier and the Coalition reduced to a razor-edge majority.

Mr Baillieu quit yesterday evening during emergency talks that saw former leader Denis Napthine assume leadership.

Mr Baillieu's decision to stand down came just hours after controversial Frankston MP Geoff Shaw quit the Liberal Party, citing a "general loss of confidence" Victorians were feeling towards the Government's leadership.

Mr Baillieu quit effective immediately, saying his decision was made "in the best interests of the Government", but that he would remain in Parliament.

He said he would throw his full support behind Dr Napthine, who was sworn in as Premier at Government House last night.

Mr Baillieu's shock announcement came after a day of fast-moving developments sparked by Mr Shaw's resignation, which leaves the Coalition with 44 seats.

After the Lyndhurst by-election in late April, Mr Shaw's vote may be decisive.

If he sides with Labor, Parliament will be deadlocked and that could trigger an election.

Sorry, this video has expired Ted Baillieu announces his resignation

Mr Baillieu fronted the media to make a brief and emotional statement, confirming that he had stepped down.

"I love this state, I love this party and I love this role that I have had the honour to enjoy over the last two-and-a-bit years," he said.

"But it is apparent to me that a change of leadership is in the best interests of the Government."

Mr Baillieu described Dr Napthine as "an outstanding individual".

"I want to put my full support behind the new leader of the Parliamentary Liberal Party, Denis Napthine, and to indicate that I will be staying on in Parliament to support him," he said.

Mr Baillieu thanked his wife Robyn and three children, along with his parliamentary colleagues.

New leader

Sorry, this video has expired Incoming Victorian Liberal leader praises Baillieu

Dr Napthine, who celebrated his 61st birthday yesterday, is a member of the Legislative Assembly and represents the South-West Coast.

A former vet, he was first elected in 1988 for the country seat of Portland and served as leader of the opposition after the resignation of Jeff Kennett in 1999.

He lost the leadership by a narrow margin to Robert Doyle in 2002.

To this point in the current Government, Dr Napthine has served as the Minister for Ports, Racing, Regional Cities and Major Projects.

He said he would look to build on the foundation left by Mr Baillieu.

"This is a great honour, a great privilege and a great challenge," Dr Napthine said.

"I'm proud to be in coalition with our National Party colleagues and I look forward to providing strong, stable and positive government for the people of Victoria."

During a speech interrupted by the unexpected ringing of parliamentary division bells, Dr Napthine praised Mr Baillieu for his service to Victorians, describing him as "not just a colleague, [but a] great friend".

"I am enormously proud that I was part of the Baillieu-led Coalition team that won the 2010 election," he said.

"Ted Baillieu certainly has served the state very well. He has served the Liberal Party extraordinarily well.

"He can be very, very proud of his achievements."

'Out of control'

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 6 minutes 37 seconds 6 m Opposition Leader Daniel Andrews discusses Baillieu resignation

Victorian Opposition Leader Daniel Andrews said there had been "corridor gossip" over the past few weeks that Mr Baillieu would stand down.

Mr Andrews said Mr Baillieu had not provided any reason for his decision to quit, and it was proof the Government is "out of control".

"Former premier Baillieu has not explained, or given to the Victorian community, the reasons he has stepped down," he said.

"The premiership of the great State of Victoria is not a birthday gift.

"It ought to be earned and be the choice of the Victorian community, not a handful of Liberal members of Parliament.

"Let's hope in the days to follow we'll learn more about why this leadership change has been made.

"This is high farce and again I make the point whilst the Liberal Party may have chosen Denis Napthine, I think it's always best if the Victorian community choose their leader."

Growing crisis

Earlier on Wednesday, Mr Baillieu seemed determined to continue as leader in the face of a growing crisis over the release of secret tapes implicating his chief of staff in secret talks with a sacked government adviser.

Mr Shaw released a statement during the afternoon, saying his decision to quit the party reflected a general loss of confidence being felt by Victorians in the leadership of the Government.

A short time after Mr Shaw released his statement, the Liberals convened an emergency meeting at Spring Street.

It was then that Mr Baillieu announced to colleagues that he would step down.

Mr Baillieu led the Liberal Party since May 2006 and represents the seat of Hawthorn.

He had been premier since December 2, 2010 after defeating Labor's John Brumby in a close contest.

NSW Premier Barry O'Farrell said on Twitter that Mr Baillieu's decision was a "typically loyal and self-effacing act [from] ... a much under-rated and under-estimated leader".

Prime Minister Julia Gillard and Opposition Leader Tony Abbott both gave Mr Baillieu their best wishes.