Transcript
Pressure has been building for weeks on Mr O'Neill's leadership with an exodus of senior ministers and MPs from his People's National Congress party joining the opposition.
After almost eight years in the position, the prime minister called time at a news conference last night (Sunday) in Port Moresby
"The recent movements of members of parliament have indicated that there is a need for a change, and people are calling for a change. So with those few words I want to say that I will be stepping down as prime minister in the coming days when I visit the governor-general to make sure that we pave way for a new government and new leadership of a new government."
Mr O'Neill announced he will 'hand over' the leadership to one of his remaining coalition partners, the former prime minister Sir Julius Chan
"We have agreed to a change of direction, that the leadership of our government will be now handed over to Sir Julius Chan, who is a veteran leader and one of the founding fathers of our great nation."
The opposition is cautious, saying it wont believe Mr O'Neill's announcement until he formally resigns
Opposition MP, James Marape, whose resignation as Finance Minister last month sparked the exodus from government, warned of "mixed signals" from the government.
"There is no such thing as the prime minister resigning and handing over leadership to someone who is not even a minister of state. That is legally not correct."
The opposition had been planning a vote of no confidence against Mr O'Neill in parliament this week.
After the defection of William Duma's United Resources Party from government on Friday, the opposition appears to have a clear majority.
Mr Duma says PNG needs a change of leadership.
"What you see here is the new government for the people of Papua New Guinea. Nearly al the leaders who are here are known to me, and they know me, so for me it was not a big change. There was no need to adjust myself."
Mr O'Neill argues that maintaining a government based around the remnants of his coalition government would be the best for the interests of political stability.
Sir Julius, who would need to resign as governor of New Ireland province before becoming prime minister, said he aimed to ensure a smooth transition of government leadership.
He emphasised the need for experienced leaders to take the country forward.
"I don't intend to be a lame duck government during my time. We're going to move this country forward, and we're going to cause a lot of changes in the economy, and we'll definitely have a look at the mining industry; and look at how best we can get all tiers of government to function properly to serve the people of this country."
Sir Julius said under his leadership government will continue the work of Peter O'Neill who he credited with having transformed PNG during his time in power.
"It's not about numbers. Running a government is a very difficult thing to do. It's not easy. It's about the people behind it who are committed to serve the people and the nation. Its not about numbers. So I appeal to all the people of PNG to give us a chance."
Sir Julius today clarified that despite impressions given by the prime minister yesterday he is not acting prime minister, because Mr O'Neill doesn't have the power to nominate a new prime minister.
This was echoed by former Chief Justice Sir Arnold Amet who said various aspects of Mr O'Neill's announcement are not legally correct.
"When he tenders his resignation he remains prime minister until the parliament elects a new prime minister who will then be sworn in. So again to be clear, the prime minister does not have the power himself to purport to appoint an acting prime minister."
Sir Julius said he has effectively been nominated as the current government's candidate for new prime minister when Mr O'Neill formally resigns and the process to elect a new prime minister gets underway
Mr Marape indicated the passing of the job to Sir Julius is unlikely to be accepted on a permanent basis by the opposition MPs, because the will of the parliament is now for new leadership.
"We've heard that they're trying to use sabotage as a way of disturbing parliament on Tuesday or Wednesday. Just do the fairest thing - the numbers have shifted. Do the honourable thing. You're in the process of resigning, and I appeal to the prime minister Peter O'Neill, don't drag the country into unnecessary stress."
However, Mr O'Neill says he cannot stand by and allow the Opposition to come into Government with what he calls its dangerous mix of wild ideas
But the opposition has all the momentum, and a vote for a new prime minister is likely in the coming days once parliament resumes on Tuesday.