Papua New Guinea is braced for a political reckoning after a tumultuous week that has seen prime minister Peter O’Neill announce his resignation following high-level defections from his party.

On Sunday, O’Neill, who has been prime minister since 2011, told a news conference in Port Moresby that he would be resigning and handing over the leadership to Sir Julius Chan, himself a former prime minister, whom O’Neill described as one of the nation’s “founding fathers”.

However on Monday, in a twist typical of the opaque nature of Papua New Guinea politics, Sir Julius said there had been “a huge misunderstanding” and that he was not acting prime minister, had not been appointed to a ministerial role and that “the existing prime minister has no power to nominate a new prime minister”.

“It is kind of funny,” said Sir Julius, who added that the position of prime minister was not one he was seeking. “However, I love Papua New Guinea”, he said. “There is a desperate need right now to unite the country.”

O’Neill’s resignation came amid accusations that he holds Australian citizenship, which would prevent him being prime minister – something he denies.

The opposition has said Sir Julius would not win a vote on who should lead the nation and that one of its own number, which includes high-profile former ministers such as James Marape and William Duma, and former prime minister Mekere Morauta, would end up as prime minister.

“We will not choose him. It’s a really bad choice,” opposition lawmaker Allan Bird told Reuters in a text message. “We want a complete break from O’Neill [and] Chan is just a proxy for O’Neill,” he said.

On Tuesday, parliament is due to reconvene. It is not known if O’Neill will officially resign, but if he doesn’t the opposition has vowed to remove him with a no confidence vote.

Jonathan Pryke, director of the Lowy Institute’s Pacific Islands program, said O’Neill hoped to install a trusted power broker and shore up his support.

But he said: “It’s a very fluid situation. By resigning, O’Neill really clears the decks for members of his own party to take the top position. It’s anyone’s guess as to who is going to win out, it is not clear cut by any means.

Pryke said that while there was a strong push against O’Neill, he should not be discounted from a future run at the top job. “Never rule Peter O’Neill out, just because he’s down now, he’s shown himself to be very effective at handling the power dynamics of PNG politics.”

The resumption of parliament on Tuesday is the latest chapter in a saga which has seen MPs camp out at two Port Moresby hotels over the last few weeks.

Members of O’Neill’s government have been holed up in the Crown hotel as they have tried to work out how to hold onto power, while members of the opposition bloc – boosted by government defections – have made the Laguna hotel their base.

The opposition has a majority of MPs and was intending to table a vote of no confidence in O’Neill when parliament resumes on Tuesday. Bryan Kramer, an opposition MP and an outspoken government critic, branded O’Neill’s resignation on Sunday a “ploy” to forestall the vote. The opposition had been about to table such a motion in early May when O’Neill adjourned parliament for three weeks.

If O’Neill’s resignation is confirmed in parliament on Tuesday, there will be a vote on a new prime minister.

The opposition bloc says it has the support of 63 of the 111 MPs, enough to allow them to pick a leader of their choosing.

“Assuming the resignation goes through, we will have 63, whoever we decide on as our nominee, which is a decision that hasn’t been made yet, will be the next prime minister,” said Kramer. “It will definitely not be Julius Chan.”

However, if O’Neill does not visit the governor-general, the Laguna camp may still table the no-confidence motion as originally planned. If it does so, parliament would then be adjourned for seven days before resuming for MPs to vote on the motion. If it was carried, O’Neill would be removed as prime minister and a vote on his replacement would be held.

Kramer said among the opposition’s first priorities if it came to power, would be to launch an investigation into O’Neill’s business practices, which have come under severe criticism, including his handling of a multibillion-dollar gas deal that opponents said was a poor outcome for PNG.

After O’Neill announced his intention to resign on Sunday, Australian prime minister Scott Morrison praised him as a “passionate servant of his country”.