Julia Gillard has announced a ballot for the party leader and deputy leader at 4:30pm AEDT today.
The prime minister made the declaration at the very start of question time at 2pm.
"In the meantime, take your best shot," Ms Gillard told the opposition leader.
At 2.10pm AEDT Opposition Leader Tony Abbott made a motion of no confidence in the prime minister.
"This is a government in deadlock," he said.
"This is a government in crisis.
"This is about reassuring the Australian people that we are a great people and we are a great country, just momentarily let down by a very poor government.
(This is) an incompetent and chaotic government which just gets worse and worse with each passing day, let alone each passing day."
The no confidence motion failed to pass along party lines.
Ms Gillard's announcement comes an hour after former opposition leader Simon Crean called for a leadership spill.
Mr Crean declared his intention to stand for deputy leader and called for Kevin Rudd to come forward and stand for the leadership.
Mr Rudd is still reportedly undecided as to whether he will run as leader.
Mr Crean has since been sacked as a minister.
Foreign minister Bob Carr, reportedly a Rudd supporter, is currently out of the country and will be unable to vote in the spill.