Liberal Leader Stéphane Dion announced Monday he will step down earlier than planned, leaving his potential successors to battle over who will steer the party ahead of a possible election.

Liberal Leader Stéphane Dion, seen at a news conference on Oct. 20, said Monday he would step down earlier than planned. (Adrian Wyld/Canadian Press)

Dion originally planned to stay on as a caretaker leader after the party's dismal election results until his successor was chosen in early May. But he has faced growing pressure from his party to leave due to his handling of the recent political crisis and his widespread unpopularity among voters.

"I have decided to step aside as leader of the Liberal party effective as soon as my successor is duly chosen," Dion said in a release. He did not specify a date.

Liberals are eager to get a new leader in place before Parliament restarts on Jan. 26, when the minority Conservative government could be toppled or a Liberal-NDP coalition government could rise to power.

The federal Liberals are divided on how to select Dion's successor and whether the new leader would be interim or permanent. Reports emerged over the weekend that it could happen as early as Wednesday, via a vote of the party's parliamentary caucus.

But after a conference call of the party's national executive Monday evening, the Canadian Press reported that the consultation process will be broadened, rather than leaving the choice strictly in the hands of the 77 Liberal MPs and 58 senators in the caucus.

The national executive will still consult the caucus, but it will also canvass the opinions of riding presidents, defeated candidates and the presidents of the party's student, women's, seniors and aboriginal clubs. That means more than 800 Liberals will get a chance to weigh in on the leadership question, although thousands of rank and file party members will still have no say, according to the Canadian Press.

Ignatieff poised to take top job?

The reports over the weekend said leadership contender Michael Ignatieff was poised to take the top job during a vote at Wednesday's caucus meeting.

Bob Rae — Ignatieff's only remaining leadership rival after New Brunswick MP Dominic LeBlanc dropped out of the race Monday afternoon — denounced the notion that Dion's successor could be selected by the caucus alone. He said the vote should include all Liberal party members.

"I just happen to have a view that says it's better to have the party as a whole involved in finding a solution than it is to have a solution imposed from above," Rae said during a news conference at his Toronto office Monday afternoon.

"No other democratic party would do it this way, and I think we have to think very carefully about finding the right process."

Ignatieff supporters argue the matter must be settled quickly and can be decided by the Liberal MPs in a vote, which would likely guarantee an Ignatieff victory. Ignatieff's campaign released late Monday a list of 44 MPs supporting him for the party leadership.

Michael Ignatieff, left, Bob Rae, centre, and Dominic Leblanc on Dec. 1. At the time, they said the entire Liberal caucus was behind Stéphane Dion's leadership. (Tom Hanson/Canadian Press)

Rae, meanwhile, has said that a caucus vote would be undemocratic and illegitimate because it would disenfranchise Liberals in the 231 ridings not represented in the House of Commons.

"I think it's in the interests of anyone who wants to be, who aspires to be the leader of the party, to be embracing a democratic process that involves the grassroots membership of the party," Rae said Monday.

Party delegates usually select leaders

His recommendation, however, poses a problem, since the Liberal party rejected a motion at its 2006 convention to introduce a one-person, one-vote system, instead sticking with the approach of letting party delegates select leaders.

Under the party's constitution, the national executive must decide in consultation with the Liberal caucus what method will be used to select the next leader, said Liberal Senator David Smith.

A key issue for Liberals is who would fare best in a general election against Prime Minister Stephen Harper's Conservative party. An Angus Reid poll released Monday suggested that Harper would easily beat a Rae-led Liberal party. The same poll also suggested that Ignatieff would also not beat the Conservatives, although the loss would be smaller.

The poll suggested that, were an election to be held now, the Liberals under Rae would garner 26 per cent of the vote versus 41 per cent for the Conservatives.

Meanwhile, with Ignatieff at the helm, the Liberals would end up with 33 per cent of the vote compared with 38 per cent for the Harper Conservatives.

LeBlanc throws support to Ignatieff

LeBlanc announced his plans to drop out of the race during a news conference in Ottawa. In doing so, he said he clearly wasn't the favoured candidate to lead the party and threw his support behind Ignatieff.

Liberal Dominic LeBlanc responds to questions at a news conference in Ottawa on Monday after announcing his withdrawal from the leadership race. (Adrian Wyld/Canadian Press)

"He is the consensus choice of the Liberals to lead our party at the moment," LeBlanc said.

He called on the party to expedite the leadership process, while ensuring that the Liberal party is able to provide input.

"Obviously, a delegated convention cannot be managed in the next three weeks, but we can and we must put a new leader in place swiftly, and then we must create a mechanism to permit widespread democratic consultation within our party," LeBlanc said.

"We have an obligation as a party to settle this issue quickly," LeBlanc said.

Dion said he agreed with party members that a new leader must be in place before Parliament resumes.

"There is a sense in the party, and certainly in the caucus, that given these new circumstances, the new leader needs to be in place before the House resumes. I agree. I recommend this course to my party and caucus," he wrote.

He also defended his decision in mid-October to remain in a caretaker role until the next leader was selected, saying it ensured "effective opposition" to Prime Minister Stephen Harper's Conservatives.

Dion proud of forcing PM to back down

"I believe that decision was the right one and I am proud of having forced Stephen Harper to back away from his attempt to force upon Canadians his most ideological and harmful plans in these tough economic times," Dion wrote.

A week after the Liberals' poor showing in the election, Dion bowed under internal pressure and vowed to step down after a leadership convention in early May.

Recent events have multiplied the pressure for Dion's quick exit, including his performance as appointed head of a proposed Liberal-NDP coalition and a video debacle.

Dion's office put out an amateurish video address to the nation last Wednesday that was delivered to networks too late and in the wrong format. The video was aired in response to the prime minister's address arguing against the coalition's right to govern.

Rather than face defeat in a confidence motion, Harper asked Gov. Gen. Michaëlle Jean to prorogue, or suspend, Parliament until late January.

Even a staunch supporter, Ontario MP Bryon Wilfert, was not surprised by Dion's announcement Monday.

"I think that the pressure was just too much in the last few days and his decision, I respect his decision. I regret it, but I understand it," Wilfert told CBC News.

With files from the Canadian Press