Greek Prime Minister Alexis Tsipras announced he would resign on Thursday to pave the way for early elections, saying it was up to Greeks to judge whether he adequately represented them in a battle with foreign lenders on austerity demands.
"The political mandate of the Jan. 25 elections has exhausted its limits and now the Greek people have to have their say," Tsipras said in a televised address.
Fresh from clinching a bailout deal, Tsipras opted for early elections to consolidate his position after nearly a third of lawmakers from his Syriza party refused to back the 86 billion euro ($96 billion) program in parliament last week, robbing him of a guaranteed political majority. Early elections could take place on Sept. 20, a government official said earlier Thursday.
Separately on Thursday, the European Central Bank confirmed it received a 3.2 billion euro ($3.58 billion) repayment from Greece, the fulfillment of its last significant obligation to the ECB for the next 11 months. Greece used bailout funds released earlier on Thursday to repay the bonds, held by the ECB and national central banks of euro zone countries.
Credit ratings agency Moody's said Tsipras' resignation could increase the risk of Greece failing to stick to its latest aid deal.
"Greek Prime Minister Tsipras's move to step down and call snap early elections on Sept. 20 could elevate program implementation concerns and, potentially, puts future official sector disbursements at risk," Moody's said in a statement.
Tsipras won power only in January and Greece's complex constitution has special stipulations for holding elections less than 12 months after the previous vote. Under these, President Prokopis Pavlopoulos cannot immediately call an election if Tsipras resigns, but must first consult the other major parties to see if they could form a government - a remote likelihood with the current parliamentary arithmetic.
Tsipras had been expected to call snap polls at some point in the autumn after his bruising seven months in office when Greece nearly crashed out of the euro zone and shut its banks for three weeks during a standoff with its euro zone and IMF creditors.
After campaigning against bailouts, the 41-year-old prime minister accepted last month Greece's third bailout, which demands tax increases and spending cuts, to avoid a banking collapse.
But the votes in parliament to pass the austerity measures laid bare a revolt by nearly a third of Syriza lawmakers, forcing Tsipras to rely on opposition support and robbing him of a guaranteed parliamentary majority.
With the bailout finally approved in parliament and the first installment of aid disbursed - allowing Greece to repay a debt to the European Central Bank that fell due on Thursday - Tsipras is turning his focus to internal politics.
Senior aides, such as Energy Minister Panos Skourletis, said the split with the party rebels who are threatening to break away had to be dealt with. "The political landscape must clear up. We need to know whether the government has or does not have a majority," he told ERT.
Syriza is expected to call a party congress in September to resolve differences with the rebels. But, expressing his personal opinion, Skourletis said Tsipras should move faster. "I would say elections first, then the party congress," he said.
Tsipras was weighing at least two options. One was to call elections in September before voters start feeling the new bailout measures including further pension cuts, more value-added tax increases and a "solidarity" tax on incomes.
Knock-on effects of capital controls imposed in June, which are likely to stay until Greek banks are recapitalised later this year with bailout funds, will also hurt voters.
The other option was to delay the vote till October, after international creditors have reviewed Greece's performance in keeping to the bailout programme. They will then start to consider some way of easing the country's huge debt burden.
Tsipras has long argued that Greece will never be able to repay all its debts and wants some to be written off. While the euro zone favours merely delaying interest and principal repayments, Tsipras could still present any debt relief moves as an achievement to the electorate.
A Metron Analysis poll on July 24 put support for Syriza at 33.6 percent, making it by far the most popular party, but not enough to govern without a coalition partner. No polls have been published since then due to the holiday season.
Syriza members have argued that the party should aim for a majority, saying this would achieve the stable government which Greece has lacked through the past five years of crisis.
"These elections, whenever they are announced by the government, will provide a stable governing solution. My feeling is that Syriza will have an absolute majority," Dimitris Papadimoulis, a Syriza lawmaker in the European parliament, told Mega TV.
— CNBC contributed to this report