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"I've made this announcement now after the fight to defeat the GCSB bill," he told media shortly after an urgent caucus meeting this afternoon. "I didn't want us distracted before now."
He said there was no ultimatum given or vote taken before he quit, but refused to answer questions about the process.
Mr Shearer's resignation is effective from when a new leader is appointed, a process which is expected to take three to four weeks. Nominations for the leadership will open within 48 hours.
This evening, Labour leader David Shearer said that is was disappointing that the Prime Minister had left it so late in the piece to clarify aspects of the Bill.
"This is a sad day, we are passing legislation that is ad hoc, that is Mickey Mouse, that you have to have a third reading of to explain exactly what the Bill will do.
"It will do nothing to reassure New Zealanders that their private lives are safe from the prying eyes of our spies.
"Right up to the last minute, the Prime Minister has been forced to clarify exactly what the GCSB will actually achieve," he said.