British Prime Minister Liz Truss has quit after just 44 days in office - bowing to the inevitable after a tumultuous term in which her policies triggered turmoil in financial markets and a rebellion in her party that obliterated her authority.

Making a hastily scheduled statement outside her 10 Downing Street office, Truss acknowledged that "I cannot deliver the mandate on which I was elected by the Conservative Party."

Her resignation, which meant she becomes the shortest-serving Prime Minister in British history, has triggered another leadership contest. A new PM will be selected from within Conservative ranks by the end of next week.

And Boris Johnson - whose ousting as PM set off the disastrous chain of events leading to Truss' downfall - will chuck his hat in the ring to seize back the top job, the Times reports.

Johnson - who is currently on holiday in the Caribbean with his wife Carrie - believes his return would be in "the national interest" after weeks of market uncertainty saw the pound plunge in value and mortgage rates soar.

The former PM is said to be consulting with other senior MPs and believes he can turn the party's fortune around.

Other frontrunners in the leadership contest are likely to be former Chancellor Rishi Sunak - who knifed Johnson in the back, leading to his resignation earlier this year - and Leader of the House of Commons Penny Mordaunt.

Truss announced her resignation at 1.30pm (1.30am NZ time) and said she had spoken to King Charles to let him know she planned to quit once a new leader was elected.

Liz Truss making a statement outside 10 Downing Street, London, where she announced her resignation as Prime Minister. Photo / Getty

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Truss is the third Conservative prime minister to resign in as many years and leaves a divided party seeking a leader who can unify its warring factions. Truss, who said she will remain in office until a replacement is chosen, has been prime minister for just 44 days.

Truss bowed out just a day after vowing to stay in power, saying she was "a fighter and not a quitter".

But she couldn't hold on any longer after a senior minister quit her government with a barrage of criticism and a vote in the House of Commons descended into chaos and acrimony just days after she was forced to abandon many of her economic policies.

Markets breathed a sigh of relief, and the pound rose about 1 per cent after Truss' resignation.

A growing number of MPs had called for Truss to resign after weeks of turmoil sparked by her September 23 economic plan, which included a raft of tax cuts that spooked financial markets that investors worried Britain couldn't afford.

That tumult resulted in the replacement of Truss' Treasury chief, multiple policy U-turns and a breakdown of discipline in the governing Conservative Party.

Where the party goes from here is not clear.

"Nobody has a route plan. It's all sort of hand-to-hand fighting on a day-to-day basis," Conservative lawmaker Simon Hoare told the BBC on Thursday before Truss resigned.

She quit after a meeting with Graham Brady, a senior Conservative who oversees leadership challenges. Brady was tasked with assessing whether the prime minister still has the support of Tory members of Parliament.

But by that point, the chorus of voices calling for her ouster was growing.

"It's time for the prime minister to go," Conservative MP Miriam Cates said.

Another, Steve Double, said of Truss: "She isn't up to the job, sadly." Legislator Ruth Edwards said "it is not responsible for the party to allow her to remain in power".

Truss' downfall was so rapid that Brady was unable to spell out exactly how the selection of a new leader would unfold, and whether the party's 172,000 members, or only its 357 MPs, would get a say.

Brady said he was "deeply conscious of the imperative in the national interest of resolving this clearly and quickly," and the new leader would be in place by October 28.

Whoever succeeds Truss will be the country's third prime minister this year alone. A national election doesn't have to be held until 2024, but Opposition parties demanded one be held now, saying the government lacks democratic legitimacy.

"The Conservative Party has shown it no longer has a mandate to govern," said Labour Party leader Keir Starmer.

"We must have a chance at a fresh start. We need a general election – now."

Conservative MPs' anger grew after a Wednesday evening vote over fracking for shale gas produced chaotic scenes in Parliament, with party whips accused of using heavy-handed tactics to gain votes.

Chris Bryant, an MP from the opposition Labour Party, said he "saw members being physically manhandled ... and being bullied".

Conservative officials denied there was manhandling.

Truss' downfall was also hastened by the resignation on Wednesday of Home Secretary Suella Braverman. She lambasted Truss in her resignation letter, saying she had "concerns about the direction of this government".

Newspapers that usually support the Conservatives were vitriolic. An editorial in the Daily Mail was headlined: "The wheels have come off the Tory clown car."

The dramatic series of events began after Truss and her Treasury chief, Kwasi Kwarteng, unveiled an economic plan with £45 billion ($88 billion) in unfunded tax cuts that resulted in a hammering of the value of the pound and increased the cost of UK government borrowing.

The Bank of England was forced to intervene to prevent the crisis from spreading to the wider economy and putting pension funds at risk.

Truss fired Kwarteng, and his replacement, Hunt, scrapped almost all of Truss' tax cuts, along with her flagship energy policy and her promise of no public spending cuts. He said the government will need to save billions of pounds and there are "many difficult decisions" to be made before he sets out a medium-term fiscal plan on October 31.

Speaking to MPs for the first time since the U-turn, Truss apologised yesterday and admitted she had made mistakes during her six weeks in office, but insisted that by changing course she had "taken responsibility and made the right decisions in the interest of the country's economic stability".

Still, Truss said she would not resign — a resolve that was short-lived. Her departure on Thursday sparked jubilation for the tabloid Daily Star, which has set up a livestream featuring a photo of the prime minister beside a head of lettuce to see which would last longer.

"This lettuce outlasted Liz Truss!" it proclaimed Thursday.

A brief timeline of UK political upheaval

It's a British cliché that a week is a long time in politics. Truss proved it true today, but the shakeup at the top is hardly an outlier in the recent history of Britain's Conservatives, whose latest troubles have been years in the making.

DAVID CAMERON'S DECISION

Some observers date the current leadership crisis to Conservative Party infighting over the role of the European Union during Cameron's 2010-2016 tenure Britain's leader. The pro-EU prime minister decided to resolve the debate by calling for a nationwide referendum on Britain's membership in the bloc. With almost 52 per cent voting to leave and 48 per cent to remain, the 2016 referendum resulted in a divisive Brexit. It also led Cameron to resign.

MAY'S BREXIT MANDATE

Theresa May succeeded Cameron as Conservative leader and prime minister with a mandate to "deliver Brexit". She remained in the job for three years and 11 days, by which time the UK's departure from the Europe Union was still pending. The House of Commons three times rejected the withdrawal agreement May's government negotiated with the EU. It was a tumultuous time mired in frustration in Brussels and discord in Westminster. Following a string of Brexit-related resignations from her government and under pressure from within her party, May ended up resigning.

BORIS JOHNSON'S TURN

In July 2019, Leave campaigner Boris Johnson became Britain's third prime minister in just over three years. Johnson made Brexit finally happen in January 2020 after four years of international squabbling. The emergence of the Covid-19 pandemic weeks later threw the UK off course again. Johnson's was accused of moving too slowly to limit travel, create an effective test-and-trace program and to project vulnerable older people. Though Johnson won praise for a swift rollout of a nationwide vaccination program, the tight restrictions on businesses, public events and private gatherings the government ultimately imposed would lay the groundwork for the end of his tenure.

WHOSE PARTY IS THIS?

Photos and witness accounts emerged indicating Johnson and government officials broke their own Covid rules on social gatherings during the pandemic. In April, Johnson received a fixed penalty notice for attending one such gathering. He was the first sitting UK prime minister to be punished for breaking the law. The scandal, dubbed "partygate" by the British press, triggered a wave of disgust across Britain, especially among those who were not permitted to attend the funerals of loved ones who died during the pandemic. Though Johnson survived a no-confidence vote over that, revelations in July that he appointed a deputy chief whip accused of misconduct led to a wave of ministerial resignations. It cost Johnson his job. He announced his resignation on July 7.

TRUSS MAKES HISTORY

Johnson ally and former Foreign Secretary Truss swept past former Treasury chief Rishi Sunak in September to become Britain's third female prime minister - and the last leader to meet with Queen Elizabeth II. However, Truss is likely to be remembered for her brevity. After resigning today, she holds the record as the shortest-serving leader in modern British history, clocking up a mere 44 days in office. Her demise was swift. The pound plummeted after the announcement of her mini-budget, which included billions in unfunded tax cuts. To stymie the damage, Truss made U-turns on major tax policies and replaced her Treasury chief. But the resignation Wednesday of Home Secretary Suella Braverman, who left with pointed criticism of her boss, unleashed a torrent of Tory calls for Truss to resign, too.

Additional reporting: news.com