Papua New Guinea Prime Minister Peter O'Neill says he is resigning from the top job.

Key points: Pressure has been mounting on Peter O'Neill to resign following the resignation of key supporters

Pressure has been mounting on Peter O'Neill to resign following the resignation of key supporters The Opposition bloc says it has 63 MPs in its camp, which would give it a majority in Parliament

The Opposition bloc says it has 63 MPs in its camp, which would give it a majority in Parliament Mr O'Neill has handed the leadership to Sir Julius Chan, who will become PM for the third time

After more than seven years in the top job Mr O'Neill told a media conference in Port Moresby that recent movements in Parliament had shown a "need for change".

He plans to hand over leadership to Sir Julius Chan, who would become prime minister for the third time.

"We have agreed to a change in direction," Mr O'Neill said.

"That the leadership in our government will be under Sir Julius Chan [who is] a veteran leader and one of our founding fathers of our great nation."

The announcement follows weeks of high-profile defections from his Government to the Opposition.

On Friday, one of Mr O'Neill's key coalition allies abandoned him.

The resignation will be formalised when Mr O'Neill visits the Governor-General, which he said will happen "in coming days".

But the Opposition says Mr O'Neill's announcement is "irrelevant" because it already has 63 MPs in its camp — which would give it a majority in parliament — and will form a new government.

"We're not moved," Opposition Leader Patrick Pruaitch said.

"We are in the serious business of putting together a government."

Mr O'Neill said he still had the support of 48 MPs, and many of them joined him for the press conference announcing his resignation.

He believes the leadership change will shore up numbers of his side, but the opposition camp maintains it is "solid".

Earlier this month, Mr O'Neill staved off an attack on his leadership by adjourning the country's Parliament for three weeks ahead of a planned vote of no confidence in him.

Despite insisting it would have a majority, the Opposition bloc that was trying to oust Mr O'Neill fell short of the numbers.

Having resisted calls to resign for weeks, Mr O'Neill has now accepted that he no longer has the support to maintain his leadership.

Sir Julius previously served as prime minister between 1980 and 1982 and from 1994 to 1997.

Peter O'Neill (centre) and Deputy Prime Minister Charles Abel (right) have handed the leadership to Sir Julius Chan (left). ( ABC News: Natalie Whiting )

Australian Prime Minister Scott Morrison said he had a "strong friendship and relationship" with Mr O'Neill and said he looked forward to working with his successor.

He described Mr O'Neill as "a passionate servant of his country" and said PNG hosting the APEC meeting last year was "a moment of great pride" for the nation.

"PNG is our closest friend and neighbour. There is just a small body of water between us," Mr Morrison said.

"Thank you on behalf of Australia for your friendship."