Liz Truss has resigned as prime minister just 44 days after taking over from Boris Johnson.
She will be the shortest-serving PM in British history.
A new Conservative leader, who will get the keys to Number 10, is set to be elected next Friday.
In a statement read outside Downing Street, Ms Truss admitted she could not deliver her mandate.
She said: “I came into office at a time of great economic and international instability.
“Families and businesses were worried about how to pay their bills.”
Sunak favourite to be new PM as Truss resigns – live politics updates
She said she was elected “with a mandate to change this”, adding: “We delivered on energy bills.”
“I recognise, though, given the situation, I cannot deliver the mandate on which I was elected by the Conservative Party,” she added.
“I have therefore spoken to His Majesty the King to notify him that I am resigning as leader of the Conservative Party.
“This morning, I met the chairman of the 1922 committee, Sir Graham Brady. We’ve agreed that there will be a leadership election to be completed within the next week.”
Ms Truss will remain as prime minister until her successor has been chosen.
Beth Rigby analysis – We will have a new PM, but it’s hard to see how it stops the rot
Read more:
Who could replace Liz Truss?
Candidates will need at least 100 nominations
The divided Tories won’t find it easy choosing a new PM
Sir Graham said the committee expects to conclude a leadership election by Friday 28 October with a new PM in place in time for the 31 October fiscal statement.
He said Tory members are expected to be able to vote but the candidates could be whittled down to just one.
A senior Tory source suggested MPs will have to put their nominations in by Monday.
Ms Truss’s resignation came just a little over 24 hours after she told MPs she was a “fighter, not a quitter”.
Who will be the next prime minister?
There has been much speculation about who could replace Ms Truss, with new chancellor Jeremy Hunt one of the main names being suggested.
However, Sky News’ deputy political editor Sam Coates said he has been told Mr Hunt will not stand.
Other Tory MPs being suggested as running are Penny Mordaunt, Rishi Sunak, Kemi Badenoch, and even ex-PM Boris Johnson.
Former leadership candidate Tom Tugendhat has ruled himself out.
Sky News understands Commons leader Ms Mordaunt and Justice Secretary Brandon Lewis are taking soundings from Tory MPs over whether to put their hats in the ring.
Loyal Johnson supporter Tory MP James Duddridge tweeted his support for the former PM, who is currently on holiday in the Caribbean.
“I hope you enjoyed your holiday boss,” he said.
“Time to come back. Few issues at the office that need addressing. #bringbackboris.”
Labour leader Sir Keir Starmer called for a general election “now” as he said the British public “must have a chance at a fresh start”.
He added: “The Tories cannot respond to their latest shambles by yet again simply clicking their fingers and shuffling the people at the top without the consent of the British people.
“They do not have a mandate to put the country through yet another experiment; Britain is not their personal fiefdom to run how they wish.”
The start of Truss’s downfall
Ms Truss’ downfall began when her former chancellor Kwasi Kwarteng announced his mini-budget on 23 September, which prompted weeks of economic turmoil and eventually led to him being sacked last Friday.
Mr Hunt, who voted for Rishi Sunak during the leadership campaign, then took over as chancellor and U-turned on the majority of the unfunded mini-budget tax cuts on Monday – further undercutting Ms Truss’s authority.
On Wednesday afternoon, her home secretary, Suella Braverman, then quit after saying she had breached security rules by sending a policy message to a colleague over her personal email by mistake.
It only got worse on Wednesday evening after confusion over whether Labour’s opposition day vote on fracking was actually a confidence vote in the government or not – which resulted in allegations of physical “manhandling” of Tory MPs by colleagues.
Some Tory MPs had publicly called for Ms Truss’s resignation before that but in the hours before she quit, a flurry of Tory MPs revealed they wanted her to go.
Conservative Party rules prevent a leader from facing a confidence vote in the first 12 months of their tenure.
But it is understood that after a significant number of MPs wrote to Sir Graham Brady, chair of the 1922 Committee of backbench Tory MPs, calling for her to go, a decision was made that she could not stay.