Shadow Treasurer Chris Bowen will nominate for Labor's leadership, setting up a battle with fellow frontbencher Anthony Albanese.

Key points: Mr Bowen officially joins the race for Labor leader, setting up a battle with Anthony Albanese

Mr Bowen officially joins the race for Labor leader, setting up a battle with Anthony Albanese Bill Shorten announced he would step down from the job after Saturday's shock election loss

Bill Shorten announced he would step down from the job after Saturday's shock election loss Labor deputy Tanya Plibersek said it "is not my time" to step up to become leader

Mr Bowen announced his candidacy outside his childhood home and said he wanted the leadership battle to be a contest of ideas.

"Anthony Albanese is a friend of mine, [he's] a good man and I think that he would make a good leader of the Labor Party," Mr Bowen said.

"And if he wins the ballot, he will have my full and undivided loyalty, but I think that the party deserves contest. I think that the party deserves choice."

Mr Albanese described Mr Bowen as a friend and said the Shadow Treasurer called him before announcing his candidacy.

He said he looked forward to the contest to lead Labor.

"It will be an opportunity for literally tens of thousands of members to express to myself and to Chris and the wider party why it is, in their view, that we came up short on Saturday," Mr Albanese said.

Labor's national executive will meet on Thursday to arrange the process for a leadership ballot.

Finance spokesman Jim Chalmers is also considering running for the top job.

Mr Chalmers and Mr Bowen are both in Labor's right faction and oversaw the contentious tax changes the party took to the election.

Mr Bowen defended the party's franking credits changes, arguing the change would have allowed Labor to spend more government funding on education and health.

"Let's talk about the elephant in the room. Some say Labor lost the election because of frank credits, which is a policy that I designed," Mr Bowen said.

"We lost this election for a whole range of reasons — some of which probably we haven't yet determined.

"Franking credits was a controversial policy, for which, no doubt, we lost some votes, but I don't accept that it is why we lost the election in entirety."

Chris Bowen was the architect of Labor's franking credits policy. ( ABC News: Nick Haggarty )

'He's got to be kidding himself'

Mr Bowen faces a possible battle gaining the support of his right faction.

The ABC has confirmed environment spokesman Tony Burke, a fellow member of the NSW right, will support Mr Albanese.

"I make it clear that this is not a factional ballot," Mr Bowen said.

"There will be no seeking to bind right-wing members. That is entirely a matter for them.

"I would hope and expect for people to weigh up the two options and vote for whom they think is the best candidate."

While Mr Bowen was speaking, rank and file members of the NSW right were expressing their disbelief at his candidacy.

Two people contacted the ABC to say "WTF?" and "he's got to be kidding himself".

Labor right powerbroker Don Farrell, a senator from South Australia, questioned Mr Bowen's path to the leadership.

"I'm not sure Chris will end up being a candidate for the leadership," he told the ABC.

Mr Albanese is in Labor's left faction and made an unsuccessful bid for the leadership in 2013, losing to Bill Shorten.

Mr Shorten announced he would step down from the leadership during his concession speech after Saturday's federal election, but will remain as the party's leader until Labor elects a replacement.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 1 minute 21 seconds 1 m 21 s Joel Fitzgibbon indicates he's prepared to run for Labor leadership

His deputy, Tanya Plibersek, had been considering a tilt for the leadership but on Monday opted against it.

"Now is not my time," she said.

Mr Albanese and Mr Bowen are both from Sydney, while Mr Chalmers is from Brisbane.

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Mr Albanese announced on Sunday that he would seek the leadership after Labor's shock election loss on Saturday.

He argued he was best placed to lead the party because he could rebuild the party in regional areas and win back blue-collar workers.

Mr Bowen, 46, served as treasurer when Kevin Rudd briefly returned to the prime ministership in 2013.

He remained in the treasury portfolio when Mr Shorten took over the party in Opposition.

Tanya Plibersek (left) ruled out running, but Chris Bowen (right) is putting his name forward. ( ABC News: Matt Roberts )

Ms Plibersek's withdrawal from the leadership race means a man is all but certain to lead the party.

She said she was willing to serve in any role the party wants, but it would be unlikely for her to remain in the deputy leader role if Mr Albanese is elected because they are in the same faction and from neighbouring inner-Sydney seats.

"I pay tribute to Tanya. She is a very good friend of mine and has been for a very long time," Mr Albanese said.

"She will play a key role in Labor's future."