Image copyright Reuters Image caption Peter O'Neill became prime minister in 2012 following a prolonged power struggle

Papua New Guinea's Prime Minister Peter O'Neill has resigned following a series of high-level defections from his government to the opposition.

Mr O'Neill, who has been in office for seven years, has faced calls for his resignation for weeks over a range of issues.

But after several more defections on Friday he accepted he did not have the support to continue.

Mr O'Neill, 54, said he would hand over office to former PM Sir Julius Chan.

"It is important that we maintain a certain amount of stability. We have heard the calls and we have agreed for a change of government," Mr O'Neill told reporters in the capital Port Moresby, according to Papua New Guinea (PNG) broadcaster EMTV.

Sir Julius said he wanted a smooth transition to ensure stability in the South Pacific nation of 7.3 million people.

"I want to thank the Prime Minister Peter O'Neill for all that he has done to bring this country (to where it is) today," he told journalists.

"We are not just going to be a caretaker government, we will work. I don't intend to be a lame duck. We will move this country forward."

However, the opposition said it had the support of enough MPs to form a new government.

In neighbouring Australia, Prime Minister Scott Morrison said he looked forward to working with Sir Julius "in the same way I have enjoyed such a strong friendship and relationship with Peter O'Neill".

Image copyright Getty Images Image caption PNG has one of the highest poverty rates in the world

"PNG is our closest friend and neighbour, there is just a small body of water between us," he told journalists in Canberra.

Mr O'Neill has been under pressure over a range of issues, including a multi-billion-dollar gas project signed earlier this year with French company Total and the US firm ExxonMobil.

Although the project would almost double PNG's gas exports, local communities have raised fears that they would be excluded from the benefits.

PNG has rich reserves of copper, gold, and oil, but development has been hampered by public order issues, rugged terrain and disputes over land.