The change in the leadership of the ruling Labour Party comes just months ahead of a general election. Kevin Rudd stood aside from a party ballot after his leadership suffered a major dip in popularity.
"I asked my colleagues to make a leadership change because I believe that a good government was losing its way... and at risk at the next election," Gillard said. "I was not going to sit idly by."
Reports of a leadership change surfaced only late on Wednesday, when Rudd emerged from talks with Gillard to announce the surprise parliamentary party vote on Thursday.