Taoiseach Enda Kenny has praised Joan Burton for helping to rescue the economy as she resigned after less than two years as Labour leader.
The former tanaiste’s move clears the way for her six Dail colleagues to vie for nominations for the job of resurrecting the party after its election annihilation.
The frontrunners are Alan Kelly, environment minister in the last coalition and the bookmakers’ favourite, and Sean Sherlock, a former junior minister and a less divisive figure.
Ms Burton will remain in the job until her successor is appointed but refused to be drawn on her preferred candidate or whether she wanted to see an agreed leader.
“It’s been a great honour for me to serve as leader and deputy leader of the party,” she said.
Ms Burton said she stood by her decision to go into government in 2011, despite the hammering her party subsequently took in the February general election in which the party lost 30 of its 37 Dail seats.
She accepted not everyone has experienced the limited economic revival and said her party could not deliver quickly enough.
“We didn’t do everything right but I believe we left Ireland a better place than we found it – the true test for any party in government,” she said.
Mr Kenny thanked Ms Burton for her work over five years in coalition.
“During this time, she and her ministerial colleagues in the Labour Party played a major role in rescuing the Irish economy, which was on the brink of collapse when we entered government in 2011,” he said.
“Many of the tough decisions that had to be taken to turn the country around were unpopular and politically difficult but Joan Burton and her colleagues were steadfast in doing what was right for the country.”
Mr Kenny said Ms Burton spearheaded many welfare reforms to drive job creation and slash unemployment from more than 15% to 8.4% over the five years.
Ms Burton, TD for Dublin West, made her announcement after a meeting of Labour’s parliamentary party in Leinster House.
Brendan Howlin, a party veteran and also a former minister, has expressed interest in the role but it is unlikely he will run for the job unless he seeks assurances that he will go unopposed.
Mr Kelly has never shied away from making clear his ambitions in the party.
Regardless of the outcome, the only job will be patient rebuilding of a support base which has been eroded by growing support for Sinn Fein and hard-left parties and anti-water charge campaigners.
Under Labour rules leadership candidates must be nominated and seconded by a TD, limiting the options for candidates.
The contest is expected to last several weeks and all party members will be eligible to vote.
Bookmakers Boylesports installed Tipperary TD Mr Kelly as the odds-on favourite for the leadership.
Ms Burton was first elected to the Dail in 1992 and lost her seat in 1997 only to regain it in 2002.
She took the last seat in the Dublin West constituency in the February election.
She was tanaiste from July 2014 and also served as minister for social protection and held two other junior ministries in her early career.
Ms Burton claimed Labour has a future in Irish politics and the hung Dail and minority government will make for more open and progressive debate.
Leo Varadkar, Ms Burton’s successor in the Department of Social Protection, an openly gay minister and her constituency counterpart in Dublin West, said he was personally grateful for her leadership in the gay marriage referendum.
“She fought for equality in Ireland and against inequality in South Africa and around the world, not because it was popular but because she believed it,” he said.
“Joan was a hard-working and reforming minister in social protection and has passed on a department transformed. She was a powerful advocate for social justice in the last government. I am privileged now to have the opportunity to build on her work in my new role.”