Brown's announcement opened the way for his party to start formal negotiations with the Liberal Democrats to form a new government, the BBC reported. The Liberal Democrats failed to reach an agreement with Conservatives, creating an opportunity for a ruling coalition with Labor once Brown agreed to step aside.
The Tories made a late offer to the Liberal Democrats to hold a referendum on voting system changes the party's leaders have sought. But the BBC said Labor leaders were believed to have offered the party legislation to put an alternative voting method in place immediately with a referendum later on a wider range of system changes.
Brown said in a statement that Britain's national interests could be best served by a coalition between his party and the Liberal Democrats. He said since Labor didn't win an overall majority, he had to accept that as voters' judgment of him. The Conservatives won the most seats in last week's elections, but not enough for an outright majority.
"I therefore intend to ask the Labor Party to set in train the processes needed for its own leadership election," he said. "I would hope that it would be completed in time for the new leader to be in post by the time of the Labor Party conference.
"I will play no part in that contest. I will back no individual candidate."
Liberal Democrats leader Nick Clegg said Brown "has taken a difficult personal decision in the national interest."
"And I think without prejudice to the talks that will now happen between Labor and the Liberal Democrats, Gordon Brown's decision is an important element which could help ensure a smooth transition to the stable government that everyone deserves," Clegg said.
The Daily Telegraph reported those likely to contend for Labor's leadership include David Miliband, the foreign secretary, his brother Ed, the climate change secretary, and Ed Balls, the schools secretary.
Clegg had asked for patience Monday while his party and the Conservative Party began a third day of negotiating Britain's leadership. Senior Tory leader William Hague had expressed optimism an accord could be reached.
That changed with Brown's decision.